Appropriation done by creditor.

This appeal is by the first defendant in the suit O.S. No. 97 of 1959, Sub-Court, Vellore objecting to the preliminary decree passed against him on foot of a mortgage admittedly executed by him. The objection relates only to the interests payable and is based upon the fact that he is an agriculturist entitled to relief under Madras Act IV of 1938.

The two defendants in the suit (the appellant and the second defendant) executed two simple mortgages for Rs. 7,900 and Rs. 9,000 on 19th February, 1953 and 7th April, 1953 respectively. On the date of the first mortgage a portion of the hypotheca was leased to the plaintiff-mortgagee. The mortgage bonds stipulated that interest should be paid at twelve per cent. per annum. There are covenants in the two mortgages authorising the mortgagee to deduct the interest payable as per the terms of the mortgage from the lease amount due from the mortgagee to the mortgagors. These covenants have been fully set out in the judgment of the learned Principal Subordinate Judge and they need not be set out over again in this judgment. The plaintiff’s case is that as per the authorisation in the two mortgages, Exhibits A-1 and A-2, she has been appropriating the interest up to 13th December, 1959, the date of the institution of the suit. She issued a notice on 21st November, 1959 on the eve of her instituting the suit, under Exhibit A-3 in which she states that all interest due and payable by the mortgagors has been appropriated in accordance with the agreement between the parties and that the balance of Rs. 16,900, the principal, is due; she demanded from the defendants payment of that amount with subsequent interest till the date of payments.The main defence put forward by the defendants was that they were not liable to pay interests beyond the statutory rate fixed by Madras Act IV of 1938 they being agriculturists, that the appropriation made by the plaintiff-mortgagee at the rate of twelve per cent. adjusting the interest towards the lease amount would not be proper and would not bind them and that the plaintiff-mortgagee was not entitled to recover anything more by way of interest than 5½ per cent.

The Court below held that having regard to the decisions of this Court the appropriation made by the creditor was not liable to be reopened and should be left intact. It is this decision of the learned Subordinate Judge which is now challenged before us. So far as this Court is concerned, the law is settled by reason of three Full Bench decisions: Mansoor v. Sankarapandia1, Chellammal v. Gaffoor Sahib2 and Muthuswami v. Savarimuthu3. In Mansoor v. Sankarapandia1, it was held that under section 13 of the Madras Agriculturists Relief Act there is no provision for any automatic discharge of interest stipulated at a rate higher than that prescribed there in; that there being neither prohibition against stipulation for payment nor an automatic discharge of higher rates of interest agreed to be paid by an agriculturist it cannot be said that when a creditor, in regard to a debt contracted after the Act, with the assent of his debtor added to the principal loan the interest accrued in terms of the contract and the debtor entered into a fresh contract treating the consolidated amount as principal for the fresh loan, there would be anything illegal or even a failure of consideration in regard to the new loan. That was a case where interest in excess of the statutory rate payable by an agriculturist was added to the principal amount of the debt and renewed into a fresh debt. Practically that was a case of an appropriation.

In Chellammal v. Gaffoor Sahib2, the position is made clearer still. In that case which was governed by section 13 of the Act, the question was whether appropriations made by the creditor should be reopened at the instance of the debtor. Referring; to my decision as a single Judge is Subbaraya Chettiar v. Vythinatha Mudaliar4, where I have observed that voluntary payments in settle