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Rameswar Prosad Singh Vs. Rai Sham Kishen - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtKolkata
Decided On
Judge
Reported in(1902)ILR29Cal43
AppellantRameswar Prosad Singh
RespondentRai Sham Kishen
Cases ReferredRameswar Koer v. Mahomed Mehdi Hossein Khan
Excerpt:
interest - enhanced rate of interest on failure to pay on due date--penalty--contract act (ix of 1872), section 74--mortgage--compound interest at a rate higher than that of simple interest--interest at contract rate up to the date fixed by court for payment of mortgage money--subsequent interest at rate to be fixed by court. - .....rate from the dates of the bonds in default of payment of interest and the stipulations for the payment of compound interest at a higher rate than the rate at which simple interest was to run are penalties, which cannot be enforced.4. the sub-judge found that the defendant had agreed to the payment of commission on the principal sums of the two bonds, that he purchased a carriage for rs. 5,000, and some kincob cloth for rs. 2,000 from two of the plaintiff's agents, that the amount of rs. 7,000 was accordingly set off against part of the rs. 35,000 which the defendant did not receive in cash on the execution of the first bond, and he holds the defendant liable for the full amount of the two bonds, excepting two sums of rs. 8,700 and rs. 3,300 shown to have been appropriated by the.....
Judgment:

Rampini and Gupta, JJ.

1. The suit out of which this appeal arises is to recover a sum of Rs. 11,23,147, being the principal, interest and compound interim due upon two mortgage bonds executed by the defendant and dated the 19th June 1888 and the 15th June 1891 respectively. The first bond is for Rs. 4,35,000, and the second for Rs. 1,65,000. The conditions of the 1st bond are: (1) that the defendant is to pay interest at as 14 per cent. per month (that is 10 1/2 per cent. per annum) with six-monthly rests; (2) that on the failure to pay interest at the end of 6 months, then compound interest at the rate of 1-8 per cent. per month (or 18 per cent. per annum) is to be paid; (3) that interest is to be calculated according to the Hindi calendar, according to which there are 13 months in each year; and (4) that if interest is not paid for one year, then interest to run on the principal at 1 per cent. per mensem from the date of the bond. The stipulations of the second bond are similar, except that the rate of simple interest is as, 12 per cent. per month instead of as, 14 per cent. per month.

2. The plaintiff sues to enforce all these stipulations. But he does not claim simple or compound interest on the 1st bond from 1888 up to 15th June 1891, because he alleges there was a settlement of accounts and the simple interest due on the first bond was entered as part of the principal of the 2nd bond, while compound interest up to that date was waived by him.

3. The defendant, Raja Rameshwar Narain Singh, admits execution of both bonds. He, however, does his best to minimize his liabilities under them. His pleas, so far as it is necessary for the purposes of this appeal to state them, are: (1) that he did not receive Rs. 85,000 out of the alleged consideration of the first bond, or Rs. 20,000 out of the alleged consideration of the 2nd bond; (2) that the stipulation for the payment of interest at a higher rate from the dates of the bonds in default of payment of interest and the stipulations for the payment of compound interest at a higher rate than the rate at which simple interest was to run are penalties, which cannot be enforced.

4. The Sub-Judge found that the defendant had agreed to the payment of commission on the principal sums of the two bonds, that he purchased a carriage for Rs. 5,000, and some kincob cloth for Rs. 2,000 from two of the plaintiff's agents, that the amount of Rs. 7,000 was accordingly set off against part of the Rs. 35,000 which the defendant did not receive in cash on the execution of the first bond, and he holds the defendant liable for the full amount of the two bonds, excepting two sums of Rs. 8,700 and Rs. 3,300 shown to have been appropriated by the plaintiffs at the time of the execution of the bonds, which two sums he disallowed. The Sub-Judge in the second place holds that the stipulations for the payment of the higher rate of interest from the date of the bond is a penalty, but he allows the plaintiff compensation at the same rate from the date of the bonds. The Sub-Judge thirdly finds that compound interest is not a penalty. Finally, he decrees that the principal amounts are to carry interest at the contract rate, until actual realization, but that, after the expiration of 6 months from the date of the decree, interest and costs are to carry interest at the rate of 6 per cent. only.

5. The defendant appeals and the plaintiffs cross appeal.

6. We will first deal with the defendant's appeal. The grounds of this appeal, as stated by the learned pleader for the appellant, are, (1) that the defendant is not liable for the two sums of Rs. 26,300 and Rs. 16,700 out of the consideration of the two 'bonds, the receipt of which he does not admit, but for which the Sub-Judge has given the plaintiff a decree; (2) that the Subordinate Judge should not have allowed any compensation to the plaintiffs in lieu of the higher rate of interest, which the defendant agreed to pay on failure to pay interest for a year; (3) that the stipulations for the payment of compound interest at a higher rate than the rate of simple interest is a penalty, which cannot be enforced; (4) that the evidence shows that the plaintiffs gave the defendant to understand that he would not enforce the stipulations for the payment of interest at a higher rate, or, at all events, that they waived their rights to claim compound interest and compensation; (5) that the Subordinate Judge should not have allowed compensation from the date of the bonds; (6) that compound interest and compensation should not have been allowed for the period of the pendency of the suit, and (7) that interest at the contract rate should have been allowed only up to the date fixed for payment, i.e., up to 6 months from the date of the decree.

7. We think it will be convenient to consider these pleas under 4 heads, viz., (1) the alleged non-receipt of the two sums of Rs. 35,000 and Rs. 20,000; (2) the stipulations for the payment of the increased rate of interest from the dates of the bonds; (3) the stipulations for the payment of compound interest; and (4) the date tip to which the contract rate of interest should be allowed.

8. There cannot, we think, be the slightest doubt on the evidence that the defendant understood perfectly well that the two sums of Rs. 35,000 and Rs. 20,000 out of the consideration of the two bonds were kept back in payment of the carriage and horses, the kincob cloth, and 'commission' to the plaintiffs, and however reluctant to agree to this being done, yet he did agree to these sums being retained and disposed of in these ways, and did consciously and knowingly admit the receipt of the full consideration of the two bonds. This is apparent from the evidence on both sides. The evidence on this point on the defendant's side is most significant. The witness, Mahomed Kadir, one of his servants, speaks of the price of the carriage and horses and of the kincob cloth being deducted from the disputed Rs. 35,000 of the first bond, admits that nazarana and salami were deducted at the rate of 7 1/2 per cent. and acknowledges receipt of Rs. 1,200 or 1,300 from the plaintiffs' agent, Rai Jaikishen, for his own labour. The witness, Waris Ali, formerly in the defendant's service, also speaks of nazarana at 6 or 7 1/2 per cent. being deducted 'according to custom', and adds: 'Nazarana and salami means that there is a custom in Gya, Patna and Benares that a mahajan, when he lends money, deducts some commission. Those who borrow money know full well that they shall have to pay it. The go-betweens on behalf of the mahajan as well 'as those on behalf of the debtor, share with the creditor in the amount taken for salami and nazarana. When I gave information to the defendant that money was deducted for salami and nazarana he said nothing. What else could ho do?' He further says: ' The carriage and horses were purchased by the Rajah's own choice. The Rajah generally purchases kincob and shawls. When I first opened negotiations with Rai Jaikishen, I was told that, if the defendant was to borrow money from the plaintiffs, he shall have to pay nazarana and salami. I mentioned the matter to the Rajah. At first he did not agree, and then I said the plaintiffs would not advance money, unless salami and nazarana were paid. The defendant agreed to it.' Chatter Lai says: 'Although he plaintiff had said that it was the practice of his firm to deduct nazarana and salami; and I and the Rajah knew of the alleged practice, we did not mention anything about it at the time of the execution of the bond for Rs. 1,65,000. There is thus direct evidence given by the defendant's own witnesses that the defendant knew of the deductions on account of commission, and, however he disliked the arrangement, had to assent to it, as he could have got the loan on no other terms. The terms, however, hard they were, were more favourable than the terms which the Rajah had been getting money on from other money lenders. There is evidence that he had been paying much higher rates of interest to others. The Rajah, it is to be remembered, was a man of mature age at the time of the transaction, and no undue advantage seems to have been taken of him. There is further abundant indirect evidence of the defendant's assent to the retention of the two sums he now complains he did not receive. For in the first place, as pointed out by the Sub-Judge, he never complained in his letters to the plaintiffs of the non-receipt of the Rs. 35,000 of the first bond. Secondly, 'in the second bond he admits the receipt of Rs. 4,35,000 under the first bond. In that second bond he pays interest on the full amount of the consideration of the first bond. Thirdly, in another bond, viz., one dated 22nd February 1889, printed at page 101 of the Paper Book, he made a similar admission. Fourthly, from the plaintiffs' books, it appears he on two occasions paid interest on the full sum of Rs. 4,35,000. There are, therefore, we think, no grounds, on which he can now, years after the bonds were executed, be allowed to turn round and say he did not receive the full amounts of the consideration for these bonds.

9. Then with regard to the stipulations for the payment of a higher rate of interest and of compound interest, it has been strenuously contended before us by one of the learned pleaders for the appellant that there is evidence that these stipulations were never intended to be acted on, but were entered in the bonds merely as what is called a dabao, that is, an empty threat to frighten the defendant into punctual payment, but never to be enforced. There is, in our opinion no satisfactory evidence to this effect. The plea is indeed one which, in the circumstances of the case, cannot possibly be entertained. It is evident that no reasonable man could suppose that such stipulations could not be enforced. The defendant must have known, and, in our opinion, did know perfectly well, when ho entered into them, that they were enforceable at the plaintiff's' pleasure, though he may have hoped that the plaintiffs would be merciful and not enforce them too strictly. It is evident, however, that he entered into them knowingly and consciously, simply because he was in difficulties and could not get the loans he required on easier terms elsewhere. As for the stipulation to pay higher interest in case of failure to pay interest for one year, this would seem to be clearly a penalty, as held by the Sub-Judge. The case of Kalachand Kyal v. Shib Chunder Roy (1892) I. L. R. 19 Calc. 392, is sufficient authority for this view; for the higher rate of interest is payable from the date of the bonds. The learned Sub-Judge was therefore justified by the terms of Section 74 of the Contract Act in giving the plaintiffs reasonable compensation. He has given the plaintiffs compensation at the same rate as the defendants agreed to pay as increased interest. The Sub-Judge was justified by the terms of Section 74 of the Contract Act, in allowing such' compensation. For, it would seem to be just and equitable to give effect to the stipulations of the parties perfectly understood and freely entered into, so far as they are lawful, and to set them aside only, so far as they are unlawful as being of a penal nature. (See also Chajmal Das v. Brij Bhuhan Lall (1895) I. L. R. 17 All. 511. But the Subordinate Judge has given the plaintiffs compensation from the date of the bonds. That would seem to be giving them too much. We think the plaintiffs will be sufficiently compensated, if they get compensation at the rate allowed by the Subordinate Judge for default in paying the interest due on the second bond from the date of the default of the second bond, and as there was, at the time of the execution of the second bond, a settlement of accounts with regard to the amount due under the first bond, when the simple interest due on the principal of the 1st bond was calculate and entered as part of the principal of the second bond, and when compound interest was waived, we think the plaintiffs may be regarded as entitled to compensation for the default in paying interest on the amount of the first bond only from the date of execution of the Second bond. When the plaintiffs accepted simple interest on the principal of the first bond they may be regarded as Waiving their claims to the higher rate of interest up to that date, and if they waive their rights, they need receive no compensation for infringement of them.

10. Then, as to the higher rate at which compound interest was to run. The case of Baid Nath Das v. Shamanand Das (1894) I. L. R. 22 Calc. 143, has been cited as authority for the view that compound interest at a higher rate than the rate of simple, interest is a penalty, while the decision in Mangniran Marwari v. Rajpati Koeri, has been relied on as an authority for the contrary view. The latter case does not deal specially with the question of compound interest at a higher rate, and it was held for reasons that do not appear to be very clear that it was a case to which the provisions of Section 74 of the Contract Act did not apply. Furthermore, the case of Mangniram Marwari v. Rajpati Koeri (1800) I. L. R. 20 Calc. 366, was fully considered in the later case of Baid Nath Das v. Shamanand Das (1894) I. L. R. 22 Calc. 143. We therefore prefer to follow this latter ruling, and would accordingly hold on its authority that the stipulations for the payment of compound interest at a higher rate is a penalty, which should not be allowed. The question then arises 'are the plaintiffs entitled to compensation in lieu of compound interest at the higher rate stipulated for?' We think they are entitled to compound interest (which is not in itself a penalty, but a perfectly legal provision) at the same rate as that an which simple interest was stipulated for in the bond.

11. The last question which remains for consideration in this appeal is up to what date interest on the principal is to run. We consider that on the authority of the cases of Rameswar Koer v. Mahomed Mehdi (1898) I. L. R. 26 Calc. 39, Maharajah of Bharatpur v. Ram Kanno Dei (1900) L. R. 28 I. A. 35, and Bakar Sajad v. Udit Marain Singh (1899) I. L. R. 21 All. 361; the Subordinate Judge was right in allowing the contract rate of interest, but that this rate should be allowed only up to the date fixed by our decree in this case for the repayment of the bond debts, i. e., up to 3 months from the date of our decree, and that after that date interest should run at the rate of 6 per cent. only. It is to be noted that in both bonds it is most clearly stipulated that the contract rate of interest shall run and all conditions shall continue till the payment! of the money covered by the bond, and as said by their Lordships of the Privy Council in the case of Rameswar Koer v. Mahomed Mehdi Hossein Khan (1898) I. L. R. 26 Calc. 39, 'the mortgagor cannot complain, if he is made to pay no more than he contracted to pay.'

12. After the date fixed by us for the settlement of accounts between the parties, after which date the defendant will not be entitled to redeem the mortgaged properties, it is sufficient, we think, if the mortgagees get interest on the amount then found to be due to them at 6 per cent. per annum.

13. We now turn to the plaintiffs' cross appeal. As stated by the, learned pleader for the cross appellants the grounds of the plaintiffs' cross appeal are: (1) that all the conditions of the parties contract should be given effect to up to the date of realization; (2) that the increased rate of interest to run from the dates of the bonds is not a penalty; (3) that the Subordinate Judge has made up the accounts between the parties on a wrong principle; and (4) that the Subordinate Judge should not have disallowed the sums of Rs. 8,700 and Rs. 3,300 deducted by the plaintiffs as commission.

14. The most important of these are the 4th and 1st of these grounds, which will be most conveniently considered in the reverse order to that in which they have been stated. The Subordinate Judge's reason for disallowing the sums of Rs. 8,700 and Rs. 3,300, retained by the plaintiffs as commission is that such commission is bad according to a certain English Act of 1888, which embodies what in his opinion ' is an equitable principle of law against which there is no statutory provision of Indian law. In our opinion, however, no distinction can fairly be made between these two sums and the balances of the sums Rs. 85,000 and (sic)20, 0000 which the defendant did not receive. With the except (sic) the sums appropriated to the payment of the price of the (sic) and of the kincob cloth there is nothing to show, how the sums was expended. It seems

15. Then, in both bonds it is expressly agreed that all conditions of the bonds, that is, interest at the contract rate on the principal, compound interest on the interest, and interest at the higher rate for default, are to continue till realization. The Subordinate Judge has given no reason for allowing the contract rate only on the principal amount up to date of realization and for disallowing compound interest and compensation for default in payment of interest. It appears to us that they should be allowed up to the date on which we allow the contract rate of interest to run on the principals of the bonds. As far as we can see there is no good (sic)reason why compound interest at the modified rate we would allow the plaintiffs and compensation for the failure to pay interest should not be allowed up to the date mentioned by us above. We accordingly allow them.

16. The other grounds of cross appeal are not important. The stipulation for the payment of the higher rate of interest is certainly a penalty, as has been said in dealing with the appeal. In our opinion the Subordinate Judge has made up the accounts between the parties perfectly correctly. He has acted quite fairly in crediting the defendants' payments to interest in the first instance.

17. We accordingly decree the appeal and cross appeal in the manner indicated above.

18. A fresh account will now be drawn up of the liabilities of the defendants to the plaintiffs, and a decree prepared according to the provisions of Section 88 of the Transfer of Property Act. The amount mentioned in the decree must be paid within three months from the date of the signing of the decree, failing which the plaintiffs will be at liberty to sell the mortgaged properties in the manner specified in the Subordinate Judge's decree. Each party to get costs in proportion to his success or failure in the appeal and cross appeal.


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