1. Mortgage suit for recovery of loans — Application for relief under Bihar Money-lenders (Regulation of Transactions) Act, 1939 — Dispute over interest rates and repayment instalments. (Para 2 , 3 , 4 )
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1947 Supreme(SC) 38
Privy Council At Patna
sir john beaumont, M.r. Jayakar , Justice lord simonds, JJ.
Amar Nath Ghosh -Appellant
Versus
Sukhraj Rai and others -Resopndent
Privy Council Appeal No. 106 of 1945; Patna Appeal No. 30 of 1943
Decided On : 23-06-1947
Advocates Appeared:
Dold, Douglas Grant , Hy. S.L. Polak and Co., Phineas Quass, Sir Valentine Holmes , Sir Alfred Wort, Sir Herbert Cunliffe
Dold, Douglas Grant , Hy. S.L. Polak and Co., Phineas Quass, Sir Valentine Holmes , Sir Alfred Wort, Sir Herbert Cunliffe
The court's discretion to re-open a money-lending transaction does not mandate the application of statutory interest caps if a higher rate is deemed fair, nor does the consolidation of unsecured loans into a secured mortgage retrospectively treat them as secured for the period they were unsecured.
Headnote:(A) Money-lenders (Regulation of Transactions) Act - Sections 7, 8, 11 and 12 - Re-opening of transaction - Discretion of Court regarding interest rates - Power to grant installments - Where a court exercises its discretion to re-open a transaction under Section 8, it is not fettered to the rates of interest mentioned in the section (9% for secured and 12% for unsecured loans) if it considers a higher rate to be fair. The Act allows the court to impose any rate of interest it thinks fit, provided it is not less than the statutory minimums for relief. (Para 10)
(B) Money-lenders (Regulation of Transactions) Act - Section 8 - Secured vs Unsecured loans - If a mortgage bond represents the consolidation of previous unsecured loans, the court is not bound to treat the interest accrued while the loans were unsecured as if they were secured. (Para 11)
(C) Money-lenders (Regulation of Transactions) Act - Sections 11 and 12 - Payment by installments - The court may direct that a decree be paid in installments based on the circumstances of the judgment-debtor, the amount of the decree, and the capacity of the debtor to pay. The feasibility of installments depends on the rate of interest fixed upon the decretal amount and the revenue of the debtor's estate. (Paras 12-16)
Facts of the case:
A borrower's father had borrowed substantial sums over several years, which were eventually consolidated into a mortgage bond. The bond provided for a specific due date but allowed the mortgagee to sue if interest remained unpaid for two consecutive years. Following a default, a suit was instituted. The debtor sought relief under the Money-lenders (Regulation of Transactions) Act regarding the capping of interest rates and the payment of the decretal amount in installments.
Findings of Court:
The court found that the lower court's discretion to re-open the transaction did not mandate the application of the 9% or 12% interest caps if a higher rate was deemed fair. It further held that previous unsecured loans did not become secured retrospectively upon consolidation. Regarding installments, the court determined that once a proper interest rate of 6% was fixed, the debtor's revenue did not justify the grant of repayment by installments.
Issues: Whether the court's discretion to re-open a transaction under Section 8 is limited to the statutory interest rates mentioned therein; whether consolidated unsecured loans should be treated as secured for the period they were unsecured; and whether the decree should be payable in installments under Sections 11 and 12.
Ratio Decidendi: The statutory interest rates in Section 8 serve as a basis for relief but do not restrict the court from awarding a higher rate if it is considered just. The consolidation of loans into a security does not change the nature of the loans for the period they were unsecured. The grant of installments is contingent upon the debtor's financial capacity and the interest rate applied to the decree.
Result: Appeal dismissed.
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2. What is the limitation on interest for the period preceding the institution of a suit under Section 7 of the Act?
A court cannot pass a decree for interest preceding the suit which, together with interest already realised, exceeds the amount of the loan advanced or evidenced by the document. (Para 7 )
Lord Simonds:-
This is an appeal from the judgment and decree of the High Court of Judicature at Patna of 18-12-1942, which dismissed the appellant's appeals and allowed certain cross-objections of the respondents from a judgment and mortgage decree of the Subordinate Judge of Bhagalpur on 8-4-1940.
[2] The relevant facts can be very shortly stated. The respondents are members of a joint Hindu family governed by the Mitakshara School of Hindu law. The appellant's father had from the year 1918 onwards, from time to time borrowed substantial sums from the respondents. The first loan was on 10-7-1918, in the sum Rs. 51,000. Ultimately on the 19-5-1930, a mortgage bond was given by the appellant's father to cover not only all previous loans, but a large sum which was then freshly borrowed. This bond carried interest at the rate of Rs. 7-8-9 per cent. per annum with annual rests.
[3] It is necessary to refer only to two provisions of the mortgage deed. It provided that the due date of payment should be March, 1945, but it further provided by cl. 10 that, in the event of the borrower failing to pay the entire sum of interest and compound interest for two consecutive years, the mortgagee should have the option to file a suit oil the basis of that indenture, either for compound interest and interest alone, or for all that was due to him for principal and interest.
[4] Default, as the respondents-alleged, having been made in the payment of the interest, this suit was instituted on 27-2-1936. A number of defences were taken, but substantially the matters in issue related to whether the appellant was entitled to any, and if so what, relief under the provisions of the Bihar Money-lenders (Regulation of Transactions) Act, 1939, which will be referred to in this judgment as "the Act." Apart from relying upon the Act, the appellant maintained that the suit was premature in that there had been no default under cl. 10 of the mortgage deed, and, therefore, the respondents had no right to institute the suit.
[5] In regard to this point, their Lordships observe that it appears that in the course of the proceedings before the High Court it was abandoned. What the High Court had to say about it appears at page 74 of Part I of the record :
"Mr. P. R. Das who appeared for the appellant did at first contend that the learned Judge was wrong in holding that the mortgage suit was not premature. He argued that as the due date was March 1945, the suit could not have been brought as it was in February 1936. It was pointed out to Mr. Das, however, that this point had not been taken in the memorandum of appeal and further that the valuation of his appeal made it clear that it was never the intention of the appellant to take such a point. The grounds of appeal are confined only to questions of interest under the Bihar Moneylenders Act. If the appellant desired to challenge the whole decree, a court-fee on the decretal amount would have to be paid. There is no substance whatsoever in the contention that the suit was premature, and Mr. P. R. Das did not ask for any amendment of the memorandum of appeal and very wisely abandoned the contention."
6. Since the appeal was launched to His Majesty in Council, a further fee has been paid so as to make good the default of the appellant, in that respect, but their Lordships are satisfied that it would not be right for them to allow this appeal to proceed upon a point which was so clearly abandoned in the Court below. They must however, add that, having heard the matter to some extent argued by the appellant's counsel, they see no reason to doubt that the point was wisely abandoned in the High Court in India.
[7] Turning now to the questions which have been raised under the Act, it is necessary in the first place to refer to Ss. 7 and 8. Section 7 provides:
"Notwithstanding anything to the contrary contained in any other law or in anything having the force of law or in any agreement, no Court shall, in any suit brought by a mone
