1. These are related appeals by respondents 1, 3 and 7 (defendants 1, 3 and 7) in an application under Section 19 of Madras Act (IV of 1938) for further amendment of a decree obtained on the foot of a usufructuary mortgage. Broadly stated, the grounds urged are: (1) that the learned Subordinate Judge ought not to have proceeded to further amend the decree under Section 9-A of the Act, which has actually resulted in an amendment at a higher figure, when this Court had earlier applied the provisions of the Madras Agriculturists Relief Act and scaled down the decree, (2)upon acorrect interpretation of Sub-section (9)(a) of Section 9-A of the Act, the arrears of rent should be deemed to be interest for all purposes of Sections 8, 9, 12 and 13 of the Act, and Explanation I to Section 8 should therefore have been applied to the facts and (3) that, in any event, the prior payments made by way of rent or towards kist should all have been appropriated towards the liquidation of the principal of the debt, or at least the debt itself, and the rule of damdupat enunciated in the Act applied, to determine the reduced final liability. Actually C.M.A. No. 263 of 1956 relates to an order on an application by defendants 1, 3 and 7 (appellants) for a declaration that the entire preliminary decree debt had been discharged, and that no further liability remained.
2. The first ground of objection can be very simply dealt with. It is true that the preliminary decree made in this suit came up before this Court in A.S. No. 624 of 1945, and that it was modified by applying the provisions of the Act in the decree of this Court, dated 6th April, 1950 (Exhibit A-3). As the learned Subordinate Judge points out, in Ganga Raju v. Ramayya (1939) 49 L.W. 203, a Division Bench of this Court has held that Sections 19 and 20 of the Madras Act IV of 1938 should be read together, and that the explanation of the expression 'Court which passed the decree' in Section 20 equally applied to Section 19. Hence, an application to amend the decree debt was properly-made to the Court of first instance. In Lingappa Chettiar v. Chinnaswaml Naidu (1955) 1 M.L.J. 1, Govinda Menon, J., in delivering the judgment of the Division Bench, referred to the earlier citation, and observed that even where an appellate Court had confirmed or modified the decree, still the Court to which an application lay under Section 19 was the Court of first instance which passed the decree. In the light of these authorities, the contention has no force that, because this Court originally modified the preliminary decree, no further application lay under Section 19 of Madras Act IV of 1938 to the Court of first instance.
3. The next ground, and it is a matter which appears to be of some complexity and difficulty, is whether, by virtue of the language in Section 9-A, Sub-section (9)(a), Explanation I to Section 8 should be applied to the present facts, so that all the payments have to be credited towards the principal. We shall immediately proceed to determine this matter, in the light of the admitted facts that this was a usufructuary mortgage with a lease back in favour of the mortgagor, as evidenced by the hypothecation bond and the registered security bond.
4. Section 9-A, Sub-section (9)(a)(i), with which we are concerned, runs as follows:
Except in cases falling under Sub-section (5)(a), where the mortgaged property, or, as the case may be, the portion thereof in the possession of the mortgagee has been leased back to the mortgagor by the mortgagee, the rent due to the mortgagee under the lease (after deducting from such rent any revenue, tax or cess paid or payable by the mortgagee in respect of the property) shall be deemed to be the interest on the mortgage debt or the portion thereof attributable to the portion of the property aforesaid and the provisions of Section 8 or 9 read with Section 12, or Section 13, as the case may be, shall apply to the entire debt.
Explanation I to Section 8 of the Act runs as follows:
In determining the amount repayable by a debtor under this section, every payment made by him shall be credited towards the principal, unless he has expressly stated in writing that such payment shall be in reduction of interest.
The problem now becomes clear, when Section 9-A, Sub-section (9)(a)(i) and Explanation I to Section 8 are considered together. Under the former provision, the rents due to the mortgagee under the lease paid by the mortgagor 'shall be deemed to be the interest on the mortgage debt '. The argument is that if this legal fiction is to be given effect to Explanation I to Section 8 must also be applied to the facts, and all payments credited towards the principal, within the ambit of that rule.
5. The problem which confronts us, therefore, is, when the Legislature creates or constructs a legal fiction by virtue of such words as ' deemed to be ', how far is that fiction to be operative?
6. As Cave, J., observed in R. v. Norfolk County Council (1891) 60 L.J.Q.B. 380.
Generally speaking, when you talk of a thing being deemed to be something, you do not mean-to say that it is that which it is to be deemed to be. It is rather an admission that it is not what it is deemed to be and that notwithstanding it is not that particular thing, nevertheless... it is deemed to be that thing.
In Commissioner of Income-tax, Bombay Presidency v. B.T. Corporation (1929) 58 M.L.J. 204 : L.R. 57 LA. 21 : I.L.R. (1929) 54 Bom. 217, the Judicial Committee observed:
Now, when a person is ' deemed to be ' something, the only meaning possible is that whereas he is not in reality that something, the Act of Parliament requires him to be treated as if he were.
Reference might also be made to The Provincial Government of Madras v. Neeli Veerabhadrappa and Ors. (1950) 1 M.L.J. 564 : I.L.R. (1951) Mad. 257., where the same dictum is quoted in the judgment of Viswanatha Sastri, J. In 'Words and Phrases Judicially Defined' by Roland Burrow, Vol. II, 1943, the authorities are cited for the same purpose of proving that the use of such words creates a legal fiction, though there is no actual identity, and the lack of identity is itself the condition upon which the legal fiction operates. Subrahmanyam J., in Kalyanasundaram v. Muthuveera (1959) 72 L.W. 1, observed:
In the vocabulary of the draftsman 'deemed' is a term of art, which expresses an intention-, to create and keep in being, by a legal fiction, that which in the ordinary course of law did not or would not exist.
But that is by no means the entire difficulty. When such a legal fiction has to be given effect to, difficulties may arise in determining the extent to which the fiction ought to be operative. A very helpful enunciation of the true principle will be found in Ex parte Walton In re Levy L.R. (1881) 17 Ch. D. 746. James, L.J., laid down:
When a statute enacts that something should be deemed to have been done, which in fact and truth was not done, the Court is entitled to and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to.
An important instance of the application of a legal fiction is East End Dwellings Co., Ltd. v. Finsbury Borough Council L.R. (1952) A.C. 109. That was a case in which, under a certain rule, a certain valuation of property was directed to be regarded as that,which it would have been, if the entire damage had been made good before a certain date of notice. Lord Asquith observed in a passage, which has become oft-quoted in the interpretation of statutory fictions:
If you are bidden to treat an imaginary state of affairs as real you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
In Income-tax Commissioner, Delhi v. S. Teja Singh : 35ITR408(SC) , their Lordships were concerned with a legal fiction under Section 18-A (9)(b) of the Income-tax Act, that the failure to send an estimate under Section 18-A (3) was to be deemed to be a failure to send a return. Venkatarama Iyer, J., observed:
It is a rule of interpretation well-settled that in construing the scope of a legal fiction, it would, be proper and even necessary to assume all those facts on which alone the fiction can operate.
The observations of Lord Asquith in East End Dwellings Co., Ltd. v. Finsbury Borough Council L.R. (1952) A.C. 109, set forth above, have been fully extracted and followed in the case.
7. We may thus arrive at two determining principles, in dealing with a statutory fiction as applying to certain facts. Firstly, the Court is entitled to and bound to ascertain, for what purposes the fiction was enacted, between what persons it should be operative, and how it should be given effect to. Secondly, in giving effect to a, legal fiction, the corollaries of the assumed identity cannot be shirked; it is not merely proper, but even necessary, to assume the other facts also upon which the fiction can operate.
8. Applying these principles, we are very clear that the rents paid towards the lease by the mortgagor should be deemed to be the interest, and that Section 8 or 9 read with Section 12 or 13 as the case may be, should be applied to scale down the entire debt. Such rents are obviously quite distinct from the interest paid by a debtor to a creditor, but the statutory fiction assumes the identity where it does not exist. But, by the very virtue of the principles that we have set forth above, we do not think that Explanation I to Section 8 in particular can apply to the facts. Explanation I lays down that every payment made by a debtor should be credited towards|the principal, unless the debtor had expressed his intention that the payment should be in reduction of interest. In other words, with reference to the law of appropriation, the rule proceeds on the footing that where there is a liberty on the part of the debtor to make a specific appropriation, namely, towards interest, and he does not make that appropriation expressly and in writing, the payments shall be considered as open payments, and shall be credited towards the principal. This cannot be the consequence of the legal fiction enacted in Section 9-A, Sub-section (9)(a)(i), for the simple reason that it does not flow either from that legal fiction, or from its inevitable corollaries. We may assume that rents or lease amounts paid constituted interest, and we may apply the provisions of Section 8 or 9 read with Section 12 or 13, as the case may be, to the facts. But we cannot construct further legal fictions, which will have to be constructed, before Explanation I to Section 8 can be made applicable. We cannot assume that the consciousness with which these rents were paid by the mortgagor, shall be deemed to be the consciousness with which a debtor repays moneys, and that the jural relationship of lessee and lessor shall further be deemed to have been substituted by the different relationship of debtor and creditor and that in a context in which the debtor had the right to make specific appropriations towards interest, expressly and in writing, he failed to do so. These are not merely the inevitable corollaries of the first and only legal fiction that the Legislature has actually enacted. For Explanation I to Section 8 to apply, other and distinct legal fictions have to be brought into play, including the legal fiction of a totally different consciousness and a right of appropriation, which the party making these payments could not have possessed. We are of the view that the observtions of Lord Asquith in East End Dwellings Co., Ltd. v. Finsbury Borough Council L.R. (1952) A.C. 109 and of the Supreme Court in Income-tax Commissioner, Delhi v. S. Teja Singh : 35ITR408(SC) , only amount to this, that for purposes of giving effect to the legal fiction, we should assume the existence of factors upon which the fiction could operate. But we cannot create further legal fictions, which have not been enacted, in order to make applicable a certain state of rights, which does not flow or follow from the assumption of identity per se which the Legislature has actually enacted. In this view, we conclude that, though the debt is liable to be scaled down, assuming that these payments towards rent are to be regarded as payments towards interest, Explanation I to Section 8 in particular cannot apply, because it has not been enacted that the person making the payments must also be deemed to have considered himself as a debtor repaying a creditor, and deemed to have exercised a right of appropriating those payments in a particular manner, either by actually appropriating them towards interest in writing, or failing to do so.
9. Upon the third ground, we do agree that credit must also be given for certain amounts paid by the lessee under the security bond, apparently equivalent to the kists payable on the properties. Since it was the mortgagee who had to pay kists under the document of hypothecation the lessee is entitled to credit for these amounts, and also to have the rule of damdupat applied to the facts. Applying that rule, we find that the properly ascertained liability is Rs. 6,320-11-4. Accordingly the Appeal No. 277 is partly allowed to this extent, and the parties will bear their own costs.