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Nilmoney Sinha Vs. Hardhan Das and ors. - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtKolkata
Decided On
Judge
Reported in2Ind.Cas.111
AppellantNilmoney Sinha
RespondentHardhan Das and ors.
Cases ReferredBaid Nath v. Shamanand Das
Excerpt:
limitation act (xv of 1877) schedule ii, articles 116, 120, 132 - money charged upon immovable property--interest payable in kind--claim for interest--when claim for principal is barred--compound interest at higher rate than simple interest--penalty. - .....necessary for the mortgagee to enforce his security the land would be liable for the value of the paddy payable as interest. in my opinion, it is a reasonable construction of article 132 to hold that in a case like this the interest which was the value of the paddy, though variable from time to time was charged upon the mortgaged premises. the view taken by the courts below concurrently upon this point is correct and the first ground cannot be supported.3. the second ground raises the question whether the chum for the first instalment of interest as also the interest thereupon is barred by limitation. the mortgage bond shows that although the interest was payable every year in pous and consequently the first instalment became due on the 12th january 1894, the principal did not become.....
Judgment:

Mookerjee, J.

1. This is an appeal on behalf of the defendant in an action for enforcement of a mortgage security executed by him in favour of the plaintiff-respondent on the 17th September 1893. The mortgage bond recited that the mortgagor borrowed Rs. 100 and covenanted to give five maps and six shaleys of good paddy as interest in the month of Pous every year. He further agreed that if there was default in payment of paddy in the shape of interest he would pay 3 shaleys of paddy as interest per map per annum. There was also a covenant that the principal amount would be repaid on the 12th April 1894. The deed recited that certain properties were mortgaged to secure payment of the principal, interest in kind, as well as interest on such interest. The first instalment of interest fell due in Pous 1300, that is, on the 12th January 1894. The substantial points in controversy between the parties are three in number: (1) whether the claim for interest which accrued more than six years before the suit is barred by limitation, (2) whether the claim for the first instalment of interest which accrued on the 12th January 1894 is barred by limitation, (3) whether the agreement to pay interest on interest at a rate higher than the original rate of interest is in the nature of a penalty and consequently unenforceable. The Courts below have concurrently decided the first question against the defendant, but upon the second and third questions the Subordinate Judge and District Judge have disagreed. The former decided both the second and third questions in favour of the defendant; the District Judge has answered them in favour of the plaintiff. On behalf of the defendant it has been urged before me that all these three objections ought to have been allowed in his favour.

2. In support of the first ground it has been urged that article 132 of the second schedule of the Limitation Act is not applicable and that the suit is governed so far as the claim for interest is concerned by article 116 or article 120. The learned vakil for the appellant has contended that this is not a suit to enforce payment of money charged upon immovable property because the interest was payable not in cash but in kind. In substance his contention is that as interest was payable in kind it cannot be said to be money charged upon immovable property. In my opinion this ' contention is founded upon a narrow construction of article 132. The mortgage bond shows that the interest payable upon the debt was charged upon immovable property, though the interest was described as payable in paddy. There can be no question that upon default of delivery of paddy the mortgagee would be entitled to the market-value thereof. The only effect of the covenant was to make the amount of interest vary with the price of paddy. When the deed recited that the land was given to secure payment of interest in kind, the substance of the transaction was that the land was made security for the value of the paddy, because upon failure to deliver the paddy the mortgagee would be entitled not to claim specific paddy but merely to recover the price thereof; in other words, the parties contemplated that should it be necessary for the mortgagee to enforce his security the land would be liable for the value of the paddy payable as interest. In my opinion, it is a reasonable construction of article 132 to hold that in a case like this the interest which was the value of the paddy, though variable from time to time was charged upon the mortgaged premises. The view taken by the Courts below concurrently upon this point is correct and the first ground cannot be supported.

3. The second ground raises the question whether the chum for the first instalment of interest as also the interest thereupon is barred by limitation. The mortgage bond shows that although the interest was payable every year in Pous and consequently the first instalment became due on the 12th January 1894, the principal did not become repayable till 12th April 1894. So far, therefore, as the first instalment was concerned it became payable independently of the principal anterior to the date fixed for repayment thereof. As this interest was expressly charged upon the mortgaged premises article 132 is applicable and the suit to enforce payment thereof ought to have been brought within 12 years from the date when it became due. As the suit was not commenced till the 12th April 1906, the claim for the first instalment of interest is obviously barred by limitation. The learned District Judge proceeded on the ground, that as the claim for principal was not barred by limitation at the date of the suit, no portion of the claim for interest could be so barred. No doubt this may be so in the case of ordinary bonds where no distinction is made between principal and interest and different dates are not fixed for their payment. But where, as here, the repayment of the principal is postponed and the interest is made payable on an earlier date than the principal and both are expressly charged upon the mortgaged premises the mortgagee would obviously be entitled to sue for interest as soon as it fell due though the principal amount had not yet become recoverable. In this view it is quite conceivable that the claim for one instalment of interest may be barred although the claim for the principal itself is not barred. Cases are not unknown in which it has been held that the principal amount may be recovered though recovery of the interest for more than six years is barred by limitation, [see In Re: Walker L.R. 7 Ch. App. 120]. I must hold, therefore, that the claim for interest in respect of the first instalment which accrued on the 12th January 1894 is barred by limitation. It is obvious, that no interest can be recovered upon this first instalment of interest, for it is well settled that no interest can be recovered if the suit for the principal amount is barred by limitation. Hajee Syud Mahomed v. Mussamat Ashrutffoonnissa 5 C. 759 at p. 765. The doctrine that when the principal right is extinguished by limitation the extinction of accessory rights follows as a matter of course has been applied in other cases : see for instance, Tammirazu Ramazogi v. Pantina Narsiah 6 M.H.C.R. 301. The reason for the rule is thus stated by Savigny in a passage in his System Vol. V, Section 311, quoted by Mr. Justice Holloway in Valia Tamburatti v. Vira Rayan 1 M. 228: 'When the principal demand is lost by prescription, action for all sums of interest in arrears are barred with the principal, even when these would primarily arise at a very recent time. The ground of this apparent anomaly is to be found in the accessory nature of these liabilities which would render the pursuit of them after the loss of the main action a contradiction in terms.' The same view was taken by Tindul, C.J. in Hollis v. Palmer 2 Bing. N.C. 713. In answer to the contention that the remedy for the principal may be barred without affecting the remedy for interest which accrues de die is diem and is a continuing or constantly renewing cause of action, the learned Chief Justice ruled that interest has always been deemed a mere accessory of the loan and when the demand for principal is barred the accessory falls along with it. The learned Chief Justice further observed that in cases where there is an express contract to pay interest independently of the principal, there may be room for the argument that you may sever the contract to pay interest from the contract to pay the principal. I refer to this last observation in support of the view that the first instalment of interest due on the 12th January 1894 may very well be barred by limitation though the claim for the principal, which was not repayable till the 12th April 1894, may not yet be barred by limitation. On this ground [ must hold that the second point urged on behalf of the appellant must be decided in his favour.

4. The third and last ground urged on behalf of the appellant relates to the covenant for payment of interest upon interest. It is to be observed that the deed provides that in default of payment of paddy in the shape of interest at the annual rate of 5 maps and 6 shaleya the mortgagor would pay three shaleys of paddy as interest thereon per map per annum until realisation. Now the original rate of interest when the value of paddy was Rs. 4 per map was equivalent to 23 per cent. per annum, and when the value of paddy rose to Rs. 5 per map the interest amounted to 28 3/4 per cent. The interest on interest at the rate of three shaleys of paddy per map amounts to 37 1/2 per cent. In other words, where as the interest upon the principal amount varies from 23 to 28 3/4 per cent. the interest upon interest is payable at the rate of 37 1/2 per cent. This is clearly a covenant which the Court should not enforce. In support of the view I take it is sufficient to refer to the case of Rameswar Prasad Singh v. Rai Sham Kishan 29 C. 43 which was subsequently affirmed by their Lordships of the Judicial Committee in Sundar Koer v. Rai Sham Krishen L.R. 34 I.A. 9 : 34 C. 150. In that case the mortgagor had covenanted to pay interest at 10 1/2 per cent. per annum and he further agreed that upon failure to pay interest at the end of six months compound interest at the rate of 18 per cent. was to be paid. It was ruled by this Court upon the authority of the case of Baid Nath v. Shamanand Das 22 C. 143 that compound interest at a higher rate than the rate of simple interest is a penalty which cannot be allowed.. The Court allowed compound interest, which was not in itself a penalty, but a perfectly legal provision, at the same rate as that at which simple interest was stipulated for in the bond. This view was affirmed by their Lordships of the Judicial Committee. Lord Davey observed on the question as to the higher rate at which compound interest was to run, that compound interest was in itself perfectly legal, but compound interest at a rate exceeding the rate of interest on the principal moneys being in excess of, and outside the ordinary and usual stipulation, may well be regarded as in the nature of a penalty, and added that the High Court had taken a reasonable course in allowing compound interest at the same rate as that at which simple interest was stipulated for in the bond. Apart from authority. I think the same conclusion would follow from first principle. Interest is merely the compensation for the use or forbearance of money, and it is difficult to appreciate why for detention of the principal the creditor should have one rate of interest, and for detention of the interest itself he should have a much higher rate of interest. The essence of the matter is that he is kept out of his money, whether such money is principal advanced by him or interest periodically payable to him. Upon failure to pay the interest regularly, it may legitimately be treated as anew principal upon which interest runs, but there is no rational reason why the rate of such interest should be higher than the rate of interest payable upon the original money. The third ground taken on behalf of the appellant must consequently prevail.

5. The result, therefore, is that this appeal must be allowed, the decree of the District Judge, in so far as it modifies the decree of the Subordinate Judge, set aside and the decree of the Subordinate Judge restored; There would be no order for costs either in this Court or in the Court of Appeal below, as the appellant has failed to substantiate his principal ground that the claim for interest for any period anterior to six years before suit is barred by limitation.


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