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J.N.Nain, J.
Appellants: Dharamdas Motibhai Wani
Vs.
Respondent: Shidya Jatrya Bhil and Ors.
A.F.A.D. No. 122 of 1963 with C.R.A. No. 123 of 1963Decided On: 21.09.1970
Counsels:
For Appellant/Petitioner/Plaintiff: B.R. Naik, Adv.
For Respondents/Defendant: V.V. Divekar, Adv.
An advance on the basis of a promissory note in which no rate of interest is specified is still an advance at interest and, therefore, a loan within the meaning of Section 2(9) of the Money Lenders Act.
Headnote:
MONEY LENDERS ACT - SECTION 2(9), 2(10), 10 - NEGOTIABLE INSTRUMENTS ACT - SECTION 80 - CIVIL PROCEDURE CODE - ORDER 37 - INTEREST ON PROMISSORY NOTE - WHETHER AN ADVANCE ON THE BASIS OF A PROMISSORY NOTE IN WHICH NO RATE OF INTEREST IS SPECIFIED IS A LOAN WITHIN THE MEANING OF SECTION 2(9) OF THE MONEY LENDERS ACT.
Fact of the Case:
Plaintiff filed two suits for recovery of money based on promissory notes executed on printed forms with blanks for interest left unfilled. The trial court decreed the suits, but the appellate court dismissed them, holding that the transactions were hit by the Money Lenders Act as the plaintiff was a money lender and the transactions were loans within the meaning of the Act.
Finding of the Court:
The court held that the transactions were loans within the meaning of Section 2(9) of the Money Lenders Act, as an advance at interest includes cases where interest is provided by contract as well as cases where interest is payable under a statute. The court also held that the appellate court should have followed the procedure prescribed by Section 10 of the Money Lenders Act and given the plaintiff an opportunity to apply for a stay of the hearing to enable him to produce a money lender's license.
Issues: 1. Whether the transactions in the two suits were governed by the Money Lenders Act. 2. Whether the appellate court should have informed the plaintiff to enable him to make an application for stay of the hearing of the suit for production of a money lenders license.
Ratio Decidendi: 1. The definition of "loan" in Section 2(9) of the Money Lenders Act includes an advance at interest, and it does not exclude an advance made on the basis of a promissory note. 2. Section 80 of the Negotiable Instruments Act provides that interest on a promissory note shall be calculated at the rate of 6% per annum, notwithstanding any agreement relating to interest between the parties. This means that an advance on the basis of a promissory note in which no rate of interest is specified is still an advance at interest. 3. Section 10 of the Money Lenders Act provides that no court shall pass a decree in favor of a money lender in any suit to which the Act applies unless the court is satisfied that the money lender held a valid license at the time the loan was advanced. 4. The appellate court should have followed the procedure prescribed by Section 10 of the Money Lenders Act and given the plaintiff an opportunity to apply for a stay of the hearing to enable him to produce a money lender's license.
Final Decision: The appeal and the revision application were allowed, the judgments and decrees of the lower appellate court were set aside, and the suits were remanded to the district court for further proceedings in accordance with the Money Lenders Act.
2. The defendants in both the suits appealed to the District Court at Dhulia. The only contentions taken before the learned Assistant Judge, who heard the appeals, were whether the plaintiff was a money - lender and secondly whether the transactions were "loans.". ON the second point, the learned Assistant Judge took the view that as the documents in the suits were promissory notes and a promissory note was not excluded from the definition of the word "loan" in the Money - Lenders Act, it was irrelevant whether the interest was mentioned in the promissory note or not. He was of the opinion that the transactions covered by the promissory notes were "loans" as defined in S. 2, sub - section (9) of the Money - Lenders Act. On the first point, he gave a finding of fact that the plaintiff was carrying on the business of money - lending and was a money - lender within the meaning of that expression in S. 2, sub - section (10) of the Money - Lenders Act.
3. Section 2, sub - s. (9) of the Act defines "loan" as meaning an advance at interest. It further provides that it does not include an advance made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881, other than a promissory note. It is clear that if the advance is made on the basis of a promissory note, it would not be excluded from the definition of a loan if it was an advance at interest. Section 2, sub - s. (10) defines a money - lender as a person who carries on the business of money - lending in the State. Section 10 of the Act provides that no Court shall pass a decree in favour of a money - lender in any suit filed by him to which the Money - Lenders Act applied unless the Court was satisfied that at the time when the loan or any part thereof, to which the suit relates was advanced. The money - lender held a valid licence. sub - section (2) provides that if during the trial of any such suit, the court finds that the money - lender had not held such licence, the court may, on the application of the money - lender, stay the hearing of the suit and require him to produce a licence within a period of three months.
4. The two contentions taken before me by Dr. B. R. Naik, appearing for the plaintiff, are ; firstly that the transactions in the two suits are not governed by the Money - Lenders Act, and secondly that even if they are when the learned
