1. Dispute regarding whether unpaid purchase money under a compromise decree constitutes a loan for relief under Section 30 of the Bengal Money Lenders Act. (Para 1 , 2 , 3 )
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1957 Supreme(SC) 74
SUPREME COURT OF INDIA
24th May, 1957
S.R. DAS, C.J.I., IMAM, GAJENDRAGADKAR AND SARKAR, JJ.
Radha Kissan Chamria and others, Appellants
Versus
Keshardeo Chamria and another, Respondent.
Civil Appeal No. 284 of 1955.
Advocates appeared
Mr. N. C. Chatterjee, Senior Advocate (Mr. D. N. Mukherjee, Advocate, with him), for Appellants; Mr. Purshottam Chatterjee, Senior Advocate, (Mr. P. K. Chatterjee, Advocate, with him), for Respondent No. 1.
Advocates:
D.N.MUKHERJI, N.C.CHATTERJI, P.K.CHATTERJI, PURSHOTTAM CHATTERJI
D.N.MUKHERJI, N.C.CHATTERJI, P.K.CHATTERJI, PURSHOTTAM CHATTERJI
Unpaid purchase money, even if agreed to be paid in installments with interest, does not constitute a "loan" or make the purchaser a "borrower" under the Bengal Money Lenders Act, unless there is a specific agreement to convert the debt into a loan.
Headnote:(A) Bengal Money Lenders Act, 1940 - Sections 2(2), 2(12) and 30 - Liability of borrower - Limit on payment of principal and interest - Definition of "borrower" and "loan" - To avail relief under Section 30, the party must establish they are a "borrower" and the transaction is a "loan" - "Loan" includes transactions which are in substance a loan (Paras 4, 5).
(B) Unpaid purchase money - Agreement to pay purchase price in installments with interest - Whether such transaction amounts to a loan - An agreement by a vendor to accept payment of purchase money in installments with interest does not alter the intrinsic nature of the debt; it remains unpaid purchase money and is not converted into a loan (Para 6).
(C) Debt vs. Loan - A debt is not necessarily a loan - For a transaction to be "in substance a loan," there must be evidence that the parties intended to change the character of the original debt into a loan, such as treating it as an interest-bearing investment in account books (Paras 7, 8).
Facts of the case:
A property was purchased at a court sale. An agreement was subsequently entered into to sell the property to other parties for the same price plus interest. A compromise decree was passed allowing the purchase price to be paid in installments with interest. After paying more than twice the original purchase price, the purchasers sought relief under the relevant money lenders act to limit their liability and claim a refund of the excess.
Findings of Court:
The court found that the compromise decree did not alter the intrinsic nature of the moneys due. The amounts remained unpaid purchase moneys and were not converted into a loan.
Issues: Whether the purchasers of a property, who were paying the purchase price in installments with interest under a compromise decree, qualify as "borrowers" and whether the transaction constitutes a "loan" under the relevant money lenders act.
Ratio Decidendi: The court ruled that an agreement by a vendor to accept the purchase price in installments with interest does not convert the unpaid purchase money into a loan. A debt is not necessarily a loan unless the parties specifically agree to treat it as such or the substance of the transaction indicates an interest-bearing investment.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Appellants contend that a compromise decree for payment of purchase money in installments with interest is in substance a loan transaction. (Para 1 , 3 , 6 )
3. Agreement to accept purchase money in installments with interest does not convert the debt into a loan unless parties specifically treat it as such. (Para 6 , 7 , 8 )
4. Unpaid purchase money retains its character as such and does not become a loan merely by agreement to pay in installments with interest. (Para 6 , 7 , 8 )
5. Appeal dismissed. (Para 9 )
6. What constitutes a loan under the Bengal Money Lenders Act?
A loan is defined as an advance of money or in kind made on condition of repayment with interest, and includes any transaction which is in substance a loan. (Para 5 )
7. Does the payment of purchase money in installments with interest convert the debt into a loan?
No, an agreement to pay purchase money in installments with interest does not alter the intrinsic nature of the debt; it remains unpaid purchase money and not a loan. (Para 6 )
8. Can a debt not originating as a loan be treated as one for the purpose of the Act?
Yes, if the parties agree to treat the money as a loan, which may be evidenced by account entries showing the original debt was replaced by a notional loan advance. (Para 7 , 8 )
Judgement
SARKAR, J.- The point involved in this appeal is a very short one. It is whether the appellants are entitled to relief under the Bengal Money Lenders Act (Bengal Act 10 of 1940). Section 30 of that Act provides as follows:
"Notwithstanding anything contained in any law for the time being in force, or in any agreement.
(1) no borrower shall be liable to pay after the commencement of this Act-
(a) any sum in respect of principal and interest which together with any amount already paid or included in any decree in respect of a loan exceeds twice the principal of the original loan,
(b) ..........................................................
(c) ...............................................................
Whether such loan was advanced or such amount was paid or such decree was passed or such interest accrued before or after the commencement of this Act,"
The appellants contend that they are borrowers and are being made to pay in excess of the limit prescribed by this section in respect of a loan to them and this they are not liable to do. The question that arises on this contention is whether what the appellants are sought to be made liable to pay is in respect of a loan within the meaning of the Act.
2. The litigation out of which this appeal arises started in 1923 and the proceedings in it have been exceedingly numerous. For the purpose of this appeal, however, it is necessary to refer to a very few of those proceedings. The respondent Durga Prasad Chamria purchased at a Court sale in execution of a decree a property in Howrah in West Bengal for a sum of Rs. 8,61,000. He paid 1/4th of the price, namely Rs. 2,15,250 on July 14,1920, which perhaps was the date of the purchase and the balance, Rs. 6,45,750, on August 20,1920.
Later on in the same year an agreement was arrived at between him and the appellants Radha Kissen Chamria and Moti Lal Chamria and their mother Anardeyi Sethani since deceased for the sale of the property to the latter for the same sum at which he had purchased it himself, namely, Rs. 8,61,000 but with interest at 6 3/4 per annum with annual rests calculated on the instalments paid by him in respect of the price for the purchase from the respective dates of payment thereof as earlier stated and the costs incurred by him in connection with the purchase together with interest at a similar rate.
The purchase not having been completed by Radha Kissen, Moti Lal and Anardeyi with sufficient dispatch the respondent Durga Prasad on June 21, 1923, instituted a suit being Title Suit No. 61 of 1923 in the Court of the Additional Subordinate Judge, Howrah against the purchasers for specific performance of the agreement for the purchase. That suit was compromised and a decree was passed on April 19, 1926, in terms of the agreement arrived at between the parties. The compromise decree is set out below:
1. The defendants shall pay to the plaintiff the moneys paid by the plaintiff for purchase of Rurmull Goenka s Howrah property as shown in Schedule A hereunder as also the expenses actually incurred by him for such purchase and the confirmation thereof with interest up to payment or realisation at the rate of nine annas per Rupees one hundred per Sambat month from the respective dates of payment by the plaintiffs with yearly rests the rest being calculated according to Sambat Mit up to the Thirty First December in each year.
The payment of the moneys mentioned above shall be made by the following instalments:
(a) The sum of money in the hands of the Receiver in this suit shall be paid at once to the plaintiff.
(b) The sum of Rupees Four Lacs Twenty Five Thousand to be paid on the execution of these presents.
(c) Thereafter the sum of Rupees Thirty Five Thousand shall be paid every month on the Twenty first day of each month commencing from the 21st day of April, one Thousand Nine Hundred and Twenty Six. The first of such payment being made on the Twenty First day of April one Thousand Nine Hundred and Twenty Six up to Seven
