Holmwood and Chapman, JJ.
1. This appeal arises out, of a suit brought by the plaintiff to recover Rs. 1,300, being principal Rs. 80 and interest Rs. 1,220 on a mortgage bond executed by three defendants on 1st Jaishta 1312.
2. The transaction was an unusual one, and the facts found require to be carefully stated as well as the circumstances which are admitted in connection with the giving of the mortgage bond and recited in the bond itself.
3. It appears that Abdul Majeed, defendant No. 1, mortgaged 6 annas of a raiyati jote in which his brother, defendant No. 2, was also interested, while defendant No. 3, a relative, mortgaged three six-annas shares of jotes and an eight-annas share of n howla belonging exclusively to him.
4. The three defendants had bid successfully at a sale of the land of one Nagorbashi Kundu and had deposited the earnest money. They were in immediate need of Rs. 80 to complete the purchase and applied to the former creditor of defendant No. 3, one Harish Chandra Pal, who had a mortgage on properties 1 to 4, on which he has, according to the plaint, recently got a decree for a heavy claim, and by him they were introduced to the plaintiff, another money-lender. The Rs. 80 was obviously only required as a temporary accommodation, and the security given was worth over Rs. 3,000 for the property No. 5 was sold under Harish Chandra Pal's decree for Rs. 650, and there are three similar jotes and a larger taluki interest also mortgaged, yet interest at 60 per cent, with compound interest was agreed to. The defendants' story is that the land they had purchased was released from sale by deposit of the decretal money by the original owner, and they therefore tendered the principal Rs. 80 and Rs. 8 interest to the plaintiff, who took the Rs. 8 and persuaded defendant No. 1 to let the principal sum stand over on promising to forego compound interest and to reduce the simple interest by half. This story has been disbelieved by the lower Courts as far as the payment of Rs. 8 and the oral agreement is concerned, but no finding has been come to as to the probability of the defendants having desired to pay off the debt when they had the money.
5. The lower Court has also held that no fraud was practised on the defendants, because defendant No. 1 is a very clever man and able to take care of himself and entered into the bond with his eyes open. But here the lower Court has, fallen into the error of not considering the position of defendant No. 3, who had a far larger interest in the property mortgaged than anybody else and who is an ordinary cultivator.
6. Every presumption mast be made in his favour, and the lower Court appears to have erred in not applying the doctrines of undue influence and penalty very strictly to his case. The trend oil modern decisions is to hold that the Courts have ample powers under the amended Contract Act to go behind hard and unconscionable bargains on the ground that where there is ample security the exaction of excessive and usurious interest in itself raises a presumption of undue influence which it requires very little evidence to substantiate. Further, it has been held that the attempt to conceal the real rate of interest by describing it as 1 pice in the rupee per mensem, or as in the present case Rs. 5 per mensem, is evidence of an intention to get the better of the debtor, and the law seems to be that there mast be a footing of complete equality between debtor and creditor and they must be, so to speak, at arm's length to make a bargain which is in itself harsh and unconscionable, enforceable at law. We may refer to the case of Carringtons, Limited v. Smith  1 K. B. 70, and the discussion at page 87 of the meaning of the terms 'harsh and unconscionable.' It is pointed out that in In re A Debtor  1. K. B. 705, the M. R. and Cozens Hardy L. J. each say that under the section of the Money Lenders Act, which deals with harsh and unconscionable bargains, the interest charged might be so excessive as of itself to render the bargain harsh and unconscionable. This does not mean that if only it is shown that a high rate of interest has been charged by a money-lender a Judge has complete power at his discretion to make a new contract for the parties. But it may mean that a very high rate of interest might raise a presumption that that rate had been extorted by conduct harsh and unconscionable, or it may mean that the same circumstances which showed that the rate was excessive might and often would show that the transaction was harsh and unconscionable. At the end of the judgment of Cozens Hardy L. J., he expressly says that the Court must have regard to all the circumstances of the case, and this, says Channell J., is the proposition upon which the whole matter turns.
7. Now, under the amended Section 16 of the Contract Act this question of a harsh and unconscionable bargain can only be considered in reference to undue influence-where there is ample security an excessive rate of interest has been held to be anything over ten per cent., where there is no security no rate of interest can be considered excessive. There can be no standard rate on personal loans, and where the parties are reasonably on terms of equality a Judge cannot do f better than adopt what they themselves have agreed on, though of course when that is not the case he has to adjudge what is reasonable as best he can under all the circumstances.
8. Applying these principles) to Section 16 and to the case before us we think that a presumption of undue influence could arise from the fact that a security of over Rs. 3,000 with a mortgage already on it for a much smaller amount was given for a loan of Rs. 80, and although on the findings of fact of the lower Courts such a presumption would in no way help defendant No. 1 not possibly his brother defendant No. 2, who is his co-sharer in property No. 5, it certainty applies in fall force to defendant No. 3, against whom there is finding that he knew what he was doing and who gave the greater part of the security without any idea that 60 per cent. compound interest would be running against him for six years. We must take it from the terms of the bond that the intention of the parties was to pay Rs. 5 a month interest for a few months until the small principal of Rs. 80 was paid off. And we cannot believe that no attempt was made by defendant No. 3 to pay this money, and there is no finding whatever against him in either of the judgments.
9. Further, the contract being for a temporary accommodation, the stipulation, that interest was to run at Rs. 5 a month was one which necessitated the payment of interest not at 60 per cent. per annum but at Rs. 5 in each month, and a stipulation that in default of 12 months' instalments of interest, compound interest would begin to ran at 60 per cent. is in the nature of a penalty.
10. However technical this may be, we think it is the duty of the Courts in India to enforce the letter of the law against obviously harsh and unconscionable bargains of this nature. The contract failing therefore as regards defendant No. 3 and being a joint mortgage, it equally fails against the other defendants.
11. Our view upon both these points has recently been propounded by the Madras High Court. In the case of Muthu Krishna Iyer v. Sankaralingum Pillai (1912) I.L.R. 36 Mad. 229. the question of penalty was dealt with and the remarks of Sadasiva Iyer J. in making the reference to the Fall Bench have entire concurrence. If we may respectfully way so, it is a masterly exposition of the intentions of the Legislature in India and a complete answer to the somewhat timid reluctance of the Courts in the earlier decisions to take a more extended view of their powers under Section 74 of the Contract Act. We entirely agree that 'the exploitation of the necessitous, of the careless and inexperienced is a trade to be extirpated in the interest of the whole community as contrary to individual morality as well as to public policy.'
12. At the risk of repetition, we cite the words of Lord Loreburn L. C. in Samuel v. Newbold  A. C. 461. 'In my opinion this contention cannot be maintained, nor ought a Court of Law to be alert in placing a restricted construction upon the language of a remedial Act. The section means exactly what it says, namely, that if there is evidence which satisfies the Court that the transaction is harsh and unconscionable, using those words in a plain and not in any way technical sense, the Court may re-open it, provided, of course, that the case meets the other condition required. These are only illustrations, and, as in the case of fraud, it is neither practicable nor expedient to attempt any exhaustive definition. What the Court has to do in such circumstances is, if satisfied that the interest or charges are excessive, to see whether in truth and fact and according to its sense of justice the transaction was harsh and unconscionable. We are asked to say that an excessive rate of interest could not be of itself evidence that it was so. I do not accept that view. Excess of interest or charges may of itself be such evidence, and particularly if it be unexplained. If no justification be established, the presumption hardens into a certainty.'
13. Now, in the case before us, no explanation whatever is offered of the harsh and unconscionable interest charged in a case where the fullest security covering the loan forty times over was given, and no explanation is given why the money-lender whom the defendants apparently trusted handed them over to another shark who was able to ruin them entirely. It was the opinion of the Full Bench that the amendments in the Indian Law of Contract went further in the direction of relief against harsh and unconscionable bargains than those of the English Money Lenders Act, and that therefore the dicta of English Judges under, that Act might be accepted; and Sadasiva Ayar J. summed up the judgment of the Pall Bench by saying: 'I do not intend to go further than I have done in my reference order into all the English and Indian cases in which learned Judges have, by the use of refined subtle language and the examination of variously worded tests and principles, tried to persuade themselves that they were acting on any other principles in giving relief against prima facie unconsionable bargains except the one intelligible principle that the provision relieved against was unconscionable in the view of ordinary men of the world possessing the usual quantum of common sense.'
14. Having found that there is technically a penalty in the bond before us, we propose to go behind the contract as to interest and to refuse compound interest altogether.
15. But we would go further in reference to Section 16, which was dealt with in the case of Kesavulu Naidu v. Arithulai Ammal (1912) I. L. R 36 Mad. 533.
16. The learned Chief Justice points out that the Judge in the Court of Appeal below found against fraud as in this case and does not find that there was undue influence, but he assumes for the purposes of the appeal before him, as we must assume in this appeal, that it is open to the High Court to deal with the case as if there had been a plea of undue influence raised. In the end, the learned Judges held that the presumption arising from the unconscionable nature of the bargain for 60 per cent. interest had been rebutted and gave the plaintiff a decree; but the principle that such a presumption would arise was upheld, and on the facts found in this case we cannot say that it has been rebutted.
17. The parties were not at arm's length. The defendants needed the money on the spot-their own moneylender took advantage of them and made them over to a confederate, who by representing that the loan was a temporary one at 5 per cent. per mensem, was enabled to pile up 60 per cent, compound interest by not asking for payment. Had it been open to us to go into the facts, we should probably have been able to find that only Rs. 88 was due having been tendered, but we are precluded from doing this in second appeal. We can only find that having regard to the very large security given, to the ignorance and want of knowledge of defendant No. 3, and to the conduct of the parties, even if defendant No. 1 has no defence, it must certainly be held that defendant No. 3 did not enter into a valid contract to pay 60 per cent. compound interest. The contract being one and indivisible, we must go behind it as a whole and give reasonable interest, which we fix at 30 per cent. simple interest as that was what defendants themselves were prepared to admit. This will work on at Rs 80 principal, and interest for 7 years 6 days Rs. 168-6-5. There will, therefore, be a mortgage decree for Rs. 248-6-5 with coats to the plain till in proportion to his success. The defendants Nos. 1 and 2 will get no costs on the amount disallowed, The defendant No. 3 will get costs on the sum disallowed, in proportion to the amount of his security.