1. This is an appeal by the plaintiffs against the decree of the Subordinate Judge of Berhampore in O.S. No. 4 of 1926 dismissing their suit. The suit was filed on foot of a simple mortgage bond (Ex. A), dated 1st May 1901,, executed by Nandigam Kamanna Patnaik (father of defendants 1 to 4) for himself and as guardian of defendant 2 who was then a minor, in favour of K.M. Appayya (father of plaintiffs 1 to 3 and grandfather of plaintiff 4) and K.M. Mokhalingam (son of Appayya and father of plaintiff 4). Under Ex. A the mortgagors had obliged themselves to deliver 26 garces of paddy with interest also payable in kind which works at 36 per cent per annum. The document provides that interest should be paid on the 15th of Pusha Sudha of every year and that the principal should be paid in January 1906. But there is a clause which provides that on the failure of payment of any instalment of interest the whole quantity due under the document should be repaid. The document bears endorsements of delivery of a garce of paddy on each of the following dates, viz. 3rd January 1904, 14th January 1911 and 12th January 1914. These endorsements have been found to be genuine by the Court below. It has also been found that the attestation to the third endorsement was not true and was added after the endorsement was made. On the ground that this is a material alteration the Subordinate Judge dismissed the suit. The plaintiffs appeal.
2. Defendant 5 purchased the equity of redemption under the sale deed Ex. 22 dated 5th January 1908. Defendants 6 to 8 are the undivided sons of defendant 5. The purchaser obtained an encumbrance certificate on 6th January 1908. The property was then subject to three other mortgages besides that of the plaintiff's. These are Exs. 9 and 10, dated 7th April 1897 and 29th June 1897, executed by Kamanna Patnaik in favour of Potnuru Adinarayana for Rs. 1,500 and Rs. 400 respectively, and Ex. 11 dated 6th December 1900 for Rs. 1,500 in favour of defendant 5's father. The former two mortgages were paid off by defendant 5 and registered receipts (Exs. 9(c) and 10(c) were obtained to evidence the payments. Defendants 5 to 8 accordingly claim that in case the plaintiffs get a decree, the decree should be subject to these three mortgages. This is the substantial point in the case. But besides this the defendants have raised other contentions also, viz. that the suit bond was not supported by consideration, that the interest is penal and that the suit is barred by limitation.
3. In appeal Mr. Srinivasa Ayyangar, the learned Advocate who appeared for the respondents, does not rely on the alteration to the third endorsement on the mortgage bond. He concedes that the alteration does not matter, but he argues that the endorsements which have been found by the lower Court to be unaccompanied by delivery of paddy and which therefore are mere acknowledgments will not avail to save limitation as against the purchaser, viz. defendant 5. This last point is the point strenuously argued in appeal.
4. Another point raised by the defendants is that the document Ex. A is not a valid document as it was originally intended to be executed by Kamanna'a eldest son, the present defendant 1, also but finally he did not join in the document.
5. Now taking the various questions in their logical order the first question to be dealt with is whether the document (Ex. A) is not a valid document on the ground that defendant 1 did not join in its execution. It is true that Ex. A shows that it was originally intended to be executed by Kamanna and defendant 1. According to the evidence after the writing of the document the plaintiff's father enquired about defendant 1. Kamanna said that he (defendant 1) would attend the Registrar's office and there sign the bond before registration. Thereupon defendant 1 left the place and did not present the document for registration but the plaintiffs' father presented it and obtained compulsory registration. Kamanna gave a deposition before the Registrar (Ex. 5) in which he said:
As my son did not like the interest document and as the consideration was not received, I did not present this document previously for registration
but he admitted his own execution. This statement and the other circumstances of the case show that this was not a case where it was intended that the document should operate only if all the persons originally intended to be the executants joined in its execution. If defendant 1 did not join the document it would not be binding against him, but there is nothing to prevent the document being valid against Kamanna and persons claiming under him. In the circumstances of the case there is no reason to think that the operation of the document was conditional on all the persons named in the document joining in it. We think that there is nothing in this point. (Their Lordships after discussing the evidence on the question of consideration held that the mortgage deed was supported by consideration to the extent of Rs. 1,000; and the judgment proceeded). The next point argued by Mr. Srinivasa Ayyangar is that the suit is barred by limitation. He contends that an acknowledgment by the mortgagor after the sale of the equity of redemption does not bind the purchaser. For this position he relies upon the decision in Bolding v. Lane (1863) 46 E.R. 47. At p. 51 Lord Westbury, L. C. observes:
It was not the intention nor is the effect of the section to give to the mortgagor or other person, who is 'by law compellable to pay the interest', a statutory power to deprive, by his acknowledgment given to a prior incumbrancer, the subsequent incmbrancers of the benefit of the statute, which would be monstrously unjust, but to enact a plain and simple rule that no person having a charge on lands shall recover more than six years' interest on such charge against any other person having an interest in the lands without an acknowledgment in writing, signed by such person or by some former owner from whom the interest is derived.
6. Under Sections 40 and 42 of the English Act different periods of limitation are prescribed for principal and arrears of interest, viz. 20 years and six years, and the case before Lord Westbury was not a case of a subsequent purchaser but of a subsequent encumbrancer. Whatever may be said in England to be the effect of holding that an acknowledgment by a mortgagor is binding on a prior purchaser or incumbrancer - and it is not clear that even the English authorities are satisfied with Lord Westbury's description 'monstrously unjust' - we do not see any injustice in so holding in this country where we have got a Law of Registration and every purchaser or encumbrancer can easily know of the existence of any prior mortgage. In the present case defendants 5 to 8 did know of it before the Registration of their sale deed. The subsequent purchaser or encumbrancer who knows the existence of a mortgage ought also to know the possibility of the mortgage being kept alive by acknowledgment or payment and as he purchased only the equity of redemption it cannot be said that he is disappointed. He gets what he bargained for. He has no right to expect that the mortgage would become barred and he can make a profit in the transaction. Accordingly it was held in Krishna Chandra Saha v. Bhairab Chandra Saha (1905) 32 Cal. 1077, that an acknowledgment keeps a mortgage alive even as against a prior purchaser. It is true that in this case there was also a payment, but the learned Judges held that the principle applies both to acknowledgments and payments. This decision was in 1905 and though a new Limitation Act was passed in 1908 the Legislature did not show any indication of their disapproval of this decision by changing the language of the Act.
7. The language of the various Limitation Acts in connection with this matter is instructive. The Limitation Act of 1859 seems to have adopted the rule of English law, but in the Act of 1871 the limiting words of the Act of 1859 were omitted. When we come to the Act of 1877, Section 19, the words, 'or by some person through whom he derives title or liability' are added. It is now contended that the object of these words is merely to cover persons who purchase after the acknowledgment. Bui the Act itself does not contain any such limitation. The Act of 1908 repeats the words of the Act of 1877 without any change though in the interval there was the decision in Krishna Chandra Saha v. Bhairab Chandra Saha (1905) 32 Cal. 1077 and a purchaser or encumbrancer after acknowledgment would be bound without the added) words. And this is all that Lord Westbury, L.C, stated at p. 51. The addition of the words therefore without any limitation as to date shows that the legislature was intending to follow a different rule.
8. In Yagnanarayana v. Venkatakrishna Rao 1925 Mad. 1108, judgment of Coutts-Trotter, J., and one of us, observations to the effect that if it was a case of pure acknowledgment the subsequent purchaser would not be bound were made, and the cases reported in Bolding v. Lane (1863) 46 E.R. 47 and Lewin v. Wilson (1836) 11 A.C. 639, were relied on. The case reported in Lewin v. Wilson (1836) 11 A.C. 639 was on the statute of New Brunswick. The actual decision was that the renewal of a document was more analogous to payment than a mere acknowledgment and would save limitation. This seems to be an attempt to create a third category other than an acknowledgment and a payment. The renewal of a document cannot be a part payment. If the old document is regarded as paid, it is completely paid off. Therefore, it can only partake of the nature of an acknowledgment. If so, it was necessary to say that an acknowledgment would save limitation. Though the actual decision therefore in that case is right, I think the reasoning adopted therein is liable to be doubted. Accordingly when the matter came up before me in Second Appeal No. 1485 of 1927 I doubted the correctness of the reasoning in Yagnanarayana v. Venkatakrishna Rao 1925 Mad. 1108 and observed that it required reconsideration. In the case before me the acknowledgment was in the subsequent sale-deed itself and the point did not actually arise for decision.
9. In Muthu Chettyar v. Muthuswami Ayyangar 1932 Mad. 616, the question again came up for consideration before Jackson and Krishnan Pandalai, JJ. Jackson, J., refers to all the authorities including Surjiram Marwari v. Barhamdeo Persad (1905) 1 C.L.J. 387 and the judgment in Yagnanarayana v. Venkatakrishna Rao 1925 Mad. 1108. The learned Judge agrees with Maclean, C.J., in thinking that the language of the section is against the contention that only an assignee after the acknowledgment is bound by it. The only difference of opinion between the learned Judges is that Krishnan Pandalai, J., thinks that the mortgagor must be at least personally liable or a portion of the property should remain unsold for the acknowledgment to be binding. But once one concedes the possibility of the acknowledgment binding a prior purchaser or encumbrancer it is difficult to see how one can bring in these limitations. The decision in Muthu Chettyar v. Muthuswami Ayyangar 1932 Mad. 616 was referred to with approval by Varadachariar and Burn, JJ., in Lakshmi Naidu v. Gunnamma since reported in 1935 Mad. 101. The same remark applies to the observations of Sadasiva Ayyar, J., in Lakshmanan Chatty v. Muthayya Chetty 1920 Mad. 1026 where the learned Judge observed that; the acknowledgment is binding 'provided the mortgagor had a substantial interest in the mortgage contract.' So far as the Indian Law is concerned we are clear that the nature of a security as understood in India all these years is such that it ought not to be lost by a subsequent mortgage or encumbrance and it ought not to be difficult to keep it alive by an acknowledgment of the mortgagor against such sale or encumbrance.
10. The case reported in Astbury v. Astbury (1898) 2 Ch. 111 relates to a case of executors which is specially provided for in the Indian Act, Stirling, J., observed that the words of the Lord Chancellor must be taken with some qualification. The learned Judge then proceeds to observe that the decision is binding upon him and considers the applicability of that principle to executors. We do not think that this case helps us in the construction of the Indian Statute. Coope v. Cresswell (1867) 2 Ch. 112 is not a case of a mortgage but a case of payment by trustees and the question arose whether it binds a tenant for life and it was held that it did not. It is noticeable that it is not a case of acknowledgment but if it is a case of payment it is conceded that even in England a payment by the mortgagor would bind the subsequent encumbrancer or purchaser. At p. 126 Lord Chelmsford observes that the decision in Roddam v. Morby (1857) 1 De G & J 1 would not apply to the case before him. That was a case of a tenant for life and remainderman and his Lordship observed:
It is unnecessary for me to consider whether the parties, tenant for life and remainderman, are so united in interest, that payment by the one might be regarded as an acknowledgment of the debt by the other. This, I think, would undoubtedly have been the case if the bond debt had been a charge upon the land.
11. The last observation of Lord Chelmsford, L.C., is therefore against the respondents' contention. The reasoning in Roddam v. Morby (1857) 1 De G & J 1 was adopted in this Presidency in Velayudham Pillai v. Vaithilingam Pillai (1912) 17 I.C. 619, by Benson and Sundara Ayyar, JJ., but we would not rely on it as it was a case of payment. We are therefore of opinion that the acknowledgment made by Kamanna Patnaik in this case is enough to save limitation as against defendants 5 to 8 and that the suit is not barred. (Their Lordships then held that defendants 5 to 8 are entitled to be subrogated to the rights under the mortgage deeds Exs. 9, 10 and 11, and proceeded). The only other point remaining for consideration is whether the interest in the transaction is penal. If it is a case of pure money-lending it cannot be held to be panal. The first rate of interest however high should be adopted. But this is a case of lending of paddy and the paddy is to carry interest in the shape of paddy and the whole thing is to be finally converted into money. The rate of paddy is so variable in different years that a contract of this kind if it has got to be finally converted into money may act so oppressively that it is not possible to apply the principle of the first contract not being penal to such a case. In a similar case (unreported) from the same District Subramania Ayyar and Bhashyam Ayyangar, JJ., held that such a contract was penal.
12. We therefore think that the contract should be relieved against. We would award interest at the rate of 18 per cent throughout. The amount due to the plaintiffs will be calculated on the above basis up to the date fixed for payment and thereafter the aggregate amount will carry interest at six per cent per annum till payment, and they will have a decree for sale of the share of Kamanna, at the time of the mortgage (to be determined in execution) subject to the defendants' rights under Exs. 9, 10 and 11. The usual mortgage decree will be drawn up. Six months for payment. The plaintiffs will have three-fourths of the proportionate costs - proportionate to the amount decreed to be recovered primarily as mortgage money and afterwards personally from all the defendants throughout.