PETITIONER: CHERUVU NAGESWARASWAMI Vs. RESPONDENT: RAJAH VADREVU VISWASUNDARA RAOAND OTHERS DATE OF JUDGMENT: 18/05/1953 BENCH: MUKHERJEA, B.K. BENCH: MUKHERJEA, B.K. MAHAJAN, MEHR CHAND HASAN, GHULAM BHAGWATI, NATWARLAL H. CITATION: 1953 AIR 370 1953 SCR 894 ACT: Hindu law-Debts-Father's power to alienate sons' interest for antecedent debts-Whether 'property' and passes to Receiver on insolvency of father-Sale by Receiver, whether vests sons' interest in purchaser-Provincial Insolvency Act, 1920, as amended in 1948, s. 28A--Retrospective operation--Madras Agriculturists' Relief Act, 1938, ss. 7, 8-Purchaser of equity of redemption--Right to claim relief. HEADNOTE: Under the provisions of s. 28A of the Provincial Insolvency Act, 1920, as amended by the Provincial Insolvency (Amendment) Act of 1948, which has been expressly made retrospective, when a Hindu father governed by the Mitakshara law is adjudged a bankrupt, his power to alienate the interest of his sons in the joint family properties for the satisfaction of his antecedent debts not contracted for illegal or immoral purposes, passes to the Receiver as his "property" within the meaning of the Act. Consequently, where a Hindu father who has mortgaged the joint family property for an antecedent debt which is not illegal or immoral becomes insolvent and the receiver sells the property, the interest of his sons in the property also vests in the purchaser, even in the case of a sale held before the Amendment Act of 1948 came into force, and the sons cannot redeem the property. Sat Narain v. Sri Kishen (63 I.A. 384), Rama Sastrulu v. Balakrishna Rao (I. L. R. 1943 --Mad. 83) and Viswanath v. Official Receiver (I.L.R. 16 Pat. 60) referred to. Though the liability of a person who has purchased an equity of redemption after 22nd March, 1938, to pay the mortgage debt arises only on the date of his purchase, if the debt itself existed on the 22nd March, 1938, and if it was payable by an agriculturist on that date, the purchaser can claim the benefits conferred by s. 7 of the Madras Agricultural Relief Act, 1938, if he himself was an agriculturist on the date of his application. Periannia v. Sellappa (I.L.R. 1939 218) referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 76 of 1950.
Appeal from the Judgment and Decree of the High Court of
Madras dated 18th April 1945, in
895
Appeals Nos. 56 and 192 of 1941 reversing in part the decree
of the Court of the Subordinate Judge of Masulipatani in
Original Suit No. 29 of 1937.
B.Somayya (C. Mallikarjuna Row, with him) for the
appellant.
K.Rajah Aiyar (R. Ganapathy Aiyar-, with him) for
Respondent No. 1.
Respondent No. 10 appeared in person.
1953. May 18. The Judgment of the Court was delivered by
MUKHERJEA J.-The appellant before us is the sixth defendant
in a suit, commenced by the plaintiff-respondent in the
court of the Subordinate Judge at Masulipatam (being
Original Suit No. 29 of 1937) for recovery of a sum of Rs.
99,653 annas odd by enforcement of a simple mortgage bond.
The mortgage bond is dated 28th September, 1930, and it was
executed by defendant No. 1 for himself and as guardian of
his two minor sons–defendants 2 and 3-all of whom consti-
tuted together a joint Hindu family at that time. The
plaintiff mortgagee happens to be the son-in-law of
defendant No. 1 and at the time of the execution of the
mortgage the first defendant was indebted to a large number
of persons including the mortgagee himself, and being hard
pressed by his creditors requested the plaintiff to lend him
a sum of Rs. 1,25,000 on the hypothecation of the properties
in suit, to enable him to tide over his difficulties and
discharge his debts. The total consideration of Rs.
1,25,000 as stated in the deed is made up of the following
items :-
(1)Rs. 13,065, which was the amount due on a promissory note
executed in favour of the plaintiff by the first defendant
on the 17th January, 1928.
(2)Rs. 13,285 due under another promissory note dated 18th
August, 1930 executed by defendant No.1 in favour of the
wife of the plaintiff and later on transferred by her to the
plaintiff on 28th September, 30.
(3)Rs. 25,000 paid by the plaintiff by endorsing in favour
of defendant No. 1 a cheque for that amount
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drawn in his name by the Co-operative Central Bank,
Ramchandrapuram on the Central Urban Bank, Madras.
(4) Rs. 937-8-0, the amount paid in cash by plain-
tiff to defendant No.1 for purchasing stamps for the
mortgage document.
(5) Rs. 72,712-8-0, the amount of future advances which the
plaintiff promised to make from time to time to defendant
No.1 according to his convenience.
The money lent was to carry interest at 7 1/2 % simple per
annum and the due date of payment of the principal money was
30th September, 1933. The interest would, however, have to
be paid annually on the 30th of September every year, in
default of which the whole of the principal and interest in
arrears would become repayable immediately with interest at
9% compound per annum with yearly rests. It was expressly
stated in the mortgage deed that if the mortgagee was unable
to advance the entire amount of Rs. 1,25,000, the terms set
out above would apply to the amount actually advanced. It
appears that after the execution of the mortgage bond a sum
of Rs. 3,000 only was paid by the mortgagee to defendant
No.1 on 5th of November, 1930. In the plaint, which was
filed by the plaintiff on the 15th September, 1937, the
total claim was laid at Rs. 99,653 annas odd, out of which
Rs. 55,287 annas odd constituted the principal money as
stated above and the rest was claimed as interest calculated
at the rate of 9% per annum compound with yearly rests.
Besides the original mortgagors, who were defendants Nos. 1
to 3 in the suit, there were three other persons impleaded
as parties defendants. Defendant No. 4 was the Receiver in
insolvency in whom the entire estate of the defendant No. 1
vested by reason of his being adjudged a bankrupt by an
order of the District Judge of Kistna dated the 18th
January, 1932 in Insolvency Proceeding No. 20 of 1931,
started at the instance of another creditor of the first
defendant. Defendant No. 5 was a lessee in respect of the
mortgaged properties under defendant No. 4, while the sixth
defendant was the purchaser of all the mortgaged
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properties from the Receiver in insolvency. The Receiver,
it seems, had put up all the suit properties to sale subject
to the mortgage on 19th April, 1937, and they were knocked
down to defendant No. 6 for the price of Rs. 1,340. A
registered deed I of sale was executed by the Receiver in
favour of the purchaser on 20th January, 1939.
The defendants 1 to 3 did neither appear nor contest the
suit. Defendant No. 4 appeared in person but disclaimed any
interest in the suit properties. The defendant No. 5
contended that he was a lessee under defendant No. 4 for one
year only and was not a necessary party to the suit at all.
The suit was really contested by defendant No. 6, the
purchaser at the Receiver’s sale. The defence taken by
defendant No. 6 in his written statement was substantially
of a two-fold character. It was pleaded in the first place
that the bond in suit was a collusive document not supported
by any consideration and was executed by defendant No. 1 in
favour of his own son-in-law, with a view to shield his
properties from the reach of his creditors. The other
contention put forward was that the interest claimed was
penal and usurious. After the passing of the Madras
Agriculturists’ Relief Act in March, 1938, this defendant
filed an additional written statement, with the permission
of the court, in which he raised the plea that as an
agriculturist he was entitled to the reliefs provided in
that Act and that the mortgage debt should be scaled down in
accordance with the provisions of the same.
The trial Judge by his judgment dated the 29th July, 1940,
decreed the suit in part. It was held that the mortgage
bond was not a collusive document executed with the
intention of defrauding the creditors of the mortgagor; it
was a genuine transaction and was supported by
consideration. On the other point, the court held that
defendant No. 6 was an agriculturist and was entitled to
claim the reliefs under Madras Act IV of 1938. After
deducting all outstanding interest which stood discharged
under section 8(1) of the
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Agriculturists Relief Act, the principal money due to the
creditor on that date was found by the trial court to be Rs.
42,870 annas odd. This figure was arrived at by taking only
the original amounts actually advanced on the two promissory
notes mentioned above and further, deducting from them, the
payments made by the debtor towards the satisfaction of the
principals in each. Thus a preliminary decree was made in
favour of the plaintiff entitling him to recover a sum of
Rs. 42,870-4-0 together with interest at 6 1/4 per annum
from 1st October, 1937, to 1st November, 1940, the date
fixed for payment under the preliminary decree. In default,
the whole amount was to carry interest at 6% per annum. It
may be mentioned here that the Subordinate Judge in deciding
issue No. 3 held expressly that the provision relating to
payment of compound interest at an enhanced rate in default
of payment of the stipulated interest on the due dates was
in the nature of a penalty and should be relieved against;
but as the court scaled down the interest under Madras Act
IV of 1938, it became unnecessary to consider in what manner
this relief should be granted under section 74 of the Indian
Contract Act.
Against this decision, two appeals were taken to the High
Court of Madras, one by the plaintiff and the other by
defendant No. 6. The plaintiff in his appeal (being Appeal
No. 56 of 1941) assailed that part of the judgment of the
Subordinate Judge which gave the defendant No. 6 relief
under the Madras Agriculturists’ Relief Act; while the
appeal of the sixth defendant (being Appeal No. 192 of 1941)
attacked the very foundation of the mortgage decree on the
ground that the mortgage being a collusive and fraudulent
transaction, the plaintiffs suit should have been dismissed
in toto. The defendants 2 and 3, although they remained ex
parts during the trial in the first court, filed, in forma
pauperig, a memorandum of cross-objection challenging the
decree of the Subordinate Judge on the ground that as their
interest in the mortgaged properties did not pass to the
defendant No, 6 by virtue of the Receiver’s sale, their
right of
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redemption remained intact and ought to have been declared
by the trial Judge.
Both these appeals as well as the cross-objection were heard
together by a Division Bench of the High Court and they were
disposed of by one and the same judgment dated the 18th of
April, 1945.
The High Court affirmed the finding of the trial Judge that
the bond in suit was supported by consideration to the
extent of Rs. 55,287-8-0 as alleged in the plaint and that
it was a valid and bona fide transaction. The learned
Judges held, differing from the trial court, that the
defendant No. 6 was not entitled to claim any relief under
the provisions of the Madras Agriculturists’ Relief Act, and
that in any event the court below was not right in reducing
the amount of the principal money from Rs. 55,287-8-0 to Rs.
42,870, there being no renewal of a prior debt so far as
defendant No. 6 was concerned. The court agreed in holding
that the provision relating to payment of enhanced interest
in case of default amounted to a penalty and reduced the
rate of interest from 9% compound to 71 % compound with
yearly rests. Lastly, the High Court allowed the cross-
objection of defendants 2 and 3, being of opinion that their
interest in the mortgaged properties could not vest in the
Receiver on the insolvency of their father and that the
defendant No. 6 could not acquire the same by virtue of his
purchase from the Receiver. The defendants Nos. 2 and 3
were, therefore, allowed the right to redeem the mortgaged
properties along with defendant No. 6. The result was that
the plaintiff was given a decree for a sum of Rs. 55,287-8-0
with interest at 7 1/2 compound with yearly rests up to the
date of redemption and subsequent interest was allowed at
the rate of 6% per annum. Interest was to be calculated
from 28th September, 1930, on Rs. 52,287-8-0 and. from 5th
November, 1930, on the amount of Rs. 3,000. Against this
decree, the defendant No. 6 obtained leave to appeal to the
Privy Council and because of the abolition of the
jurisdiction of the Privy Council, the appeal has come
before us.
900
Mr. Somayya, who appeared in support of the appeal, did not
press before us the contention raised on behalf Of his
client in the courts below that the mortgage was a
fraudulent transaction or was void for want of consi-
deration. He assailed the propriety of the judgment of the
High Court substantially on three points. His first
contention is, that the decision of the High Court allowing
a right of redemption to defendants 2 and 3 cannot stand in
view of the amendment introduced by the Provincial
Insolvency Amendment Act, 1948, which has been expressly
made retrospective. The second point taken by the learned
counsel is that the defendant No. 6 should have been given
relief under the Madras Agriculturists’ Relief Act and the
debt should have been scaled down in accordance with the
provisions thereof. It is said that the defendant No. 6 was
an agriculturist himself and even if he was not, the relief
under Madras Act IV of 1938 was still available to him by
reason of the original mortgagors being agriculturists. The
third and the last point urged is that in any event having
regard to the finding arrived at by the High Court that the
stipulation to pay compound interest at an enhanced rate was
a penalty, adequate relief should have been granted against
it and no compound interest should have been allowed at all.
The first point raised by the learned counsel, in our
opinion, is well-founded and must succeed. There was some
difference of judicial opinion as to whether the powers of a
father under the Mitakshara law to alienate the joint family
property including the interest of his sons in the same for
discharge of an antecedent debt not contracted for illegal
or immoral purposes vests in the Receiver on the
adjudication of the father as an insolvent. Under the
Presidency Towns Insolvency Act, this power was held to vest
in the Official Assignee under section 52(2) of the Act(1).
As regards cases governed by Provincial Insolvency Act, it
was held by a Full Bench of the Madras High Court that the
father’s power to dispose of his son’s interest in the joint
family property for satisfaction of his untainted
(1) Sat Narain v. Sri Kishen, (1936) 63 I.A. 384.
901
debts was not “property” within the meaning of section 28
(2) (d) of the Provincial Insolvency Act(1) ; while a
contrary view was taken by a Full Bench of the Patna High
Court (2) . The conflict has now been set at rest by the
enactment of section 28A in the Provincial Insolvency
Amendment Act of 1948 which came into force on the 12th
April, 1948. The new Section reads as follows :-
” The property of the insolvent shall comprise and shall
always be deemed to have comprised also the capacity to
exercise and to take proceedings for exercising all such
powers in or over or in respect of property as might have
been exercised by the insolvent for his own benefit at the
commencement of his insolvency or before his discharge.”
The language of the section indicates that its operation has
been expressly made retrospective. The result, therefore,
is that the power of the defendant No. 1 to alienate the
interest of his sons, the defendants 2 and 3, in the
mortgaged properties for satisfaction of his antecedent
debts, did pass to the Receiver as “Property” within the
meaning of the Provincial Insolvency Act and consequently OD
a sale by the Receiver the interest of defendants 2 and 3
did vest in the sixth defendant, and he alone must be held
competent to exercise the right of redemption.
The second point urged by Mr. Soinayya raises the question
as to whether the appellant could claim relief under the
Madras Agriculturists’ Relief Act. The High Court decided
this point against the appellant firstly on the ground that
the appellant was not a debtor at the date of the
commencement of the Act, he having acquired no interest in
the equity of redemption at that time. The other reason
given is that the defendant No. 6 was not an agriculturist
within the meaning of the Agriculturists’ Relief Act and
although he was possessed of agricultural lands and hence
prima facie came within the definition of an ” agriculturist
” as given in section 2 (ii) of
(1) Ramasastralu v. Balakrishna Rao I.L.R. [1943] Mad. 83.
(2) Viswanath v. Official Receiver, I.L.R. (1936) 16 Pat,
60 (F.B.).
902
the Act, he was excluded from the definition by the
operation of proviso (D) attached to the sub-section.
So far as the first ground is concerned, section 7 of the
Agriculturists’ Relief Act expressly lays down that ” all
debts payable by an agriculturist at the commencement of
this Act, shall be scaled down in accordance with the
provisions of this chapter”. The essential pre-requisite to
the application of the provisions of the chapter, therefore
is the existence of a debt payable by an agriculturist on
the date when the Act commenced, that is to say, on the 22nd
March, 1938. The learned Judges of the High Court were
certainly right in saying that the sixth defendant was not a
debtor on that date, as he did not become the owner of the
equity of redemptin till the 20th of January, 1939, when the
deed of sale was executed in his favour by the Receiver in
insolvency. But this by itself is not sufficient to
disentitle the appellant to the privileges of the
Agriculturists’ Relief Act. It is not necessary that the
applicant for relief himself should be liable for the debt
on the date that the Act came into-force. The right to
claim relief as is well settled by decisions(1) of the
Madras High Court is not confined to the person who
originally contracted the debt, but is available to his
legal representatives and assigns as well; nor is it
necessary that the applicant should be personally liable for
the debt. The liability of a purchaser of the equity of
redemption to pay the mortgage debt undoubtedly arises on
the date of his purchase; but the debt itself which has its
origin in the mortgage bond did exist from before his
purchase, and if it was payable by an agriculturist at the
relevant date, the purchaser could certainly claim the
privileges of the Act if he himself was an agriculturist at
the date of his application. The material question,
therefore, is whether the mortgage debt was payable by an
agriculturist on 22nd March, 1938 ? The appellant argues
that it was payable by the mortgagors and they were
certainly agriculturists. We do not think that there is
warrant for any such assumption on
(1) Vide Periannia v. Sellappa, I.L.R. [1939] Mad. 218.
903
the materials as they exist on the record. The only issue
before the trial Judge was, as to whether defendant No. 6
was an agriculturist. There was neither any question raised
nor any evidence adduced as to whether defendants Nos. I to
3 were agriculturists as well. In fact, this aspect of the
case was not adverted to by the trial Judge at all. Before
the High Court it was argued on behalf of defendant No. 6
that even if he was not an agriculturist himself, yet if the
defendants 2 and 3 were given relief as agriculturists, that
would enure for his benefit as well and accordingly he
invited the court to go into the question and hold that the
original mortgagors were agriculturists. This the learned
Judges refused to do and dismissed this part of the claim of
defendant No. 6 with these remarks:
“In the present case, the mortgagors have not claimed such a
benefit, nor have they adduced any evidence to show that
they are agriculturists. We therefore cannot accede to the
request of the sixth defendant that the right of the
mortgagors to relief should be investigated merely with the
object of giving an accidental relief to the non-
agriculturist purchaser.”
As the point was not investigated at all, it is not possible
for us to hold that the debt was payable by an agriculturist
on the relevant date. It may be that the mortgaged
properties were agricultural lands but it is not known
whether the mortgagors did possess other estates which might
bring them within the purview of any of the provisos
attached to the definition. In these circumstances, the
appellant must be deemed to have failed to show that there
was in existence a debt payable by an agriculturist on 22nd
March, 1938.
The High Court has held further that the defendant No. 6 was
not an agriculturist because he was the purchaser of certain
villages at a court sale in respect of which Peishkush
exceeding Rs. 500 was payable. Consequently, he became ”
land-holder of an estate ” under the Madras Estates Land Act
and could not claim to be an agriculturist as laid down in
the proviso (D) to section 2 (ii) of the Act. Mr. Somayya
904
lays stress upon the fact that this purchase on the part of
his client was merely as a benamidar for defendant No. 5 as
has been held by both the courts below and consequently the
proviso did not affect him at all. This is a debatable
point upon which the judicial opinion of the Madras High
Court itself does not seem to be quite uniform. A
distinction can certainly be drawn between the rights of a
person in his own individual or personal capacity and those
which he exercises on behalf of another. On the other hand,
if we look to the definition of ” land-holder ” as given in
section 3 (5) of the Madras Estates Land Act, it may be
argued that a benamidar of an estate, who is entitled to
collect rents and is at least the titular owner of the
estate could come within the description. Having regard to
the view taken by us that section 7 of the Agriculturists’
Relief Act is not applicable on the facts of the present
case, this question does not really become material and it
is not necessary for us to express any final opinion upon
it. For the identical reason section 8 (1) of the Act
cannot also be invoked in favour of the appellant. It may
further be mentioned that Mr. Somayya in course of his
arguments made it plain that he would not press for relief
under the Agriculturists’ Relief Act if the high rate of in-
terest allowed by the High Court was substantially reduced.
This takes us to the third point and we think that the
stipulation as to payment of compound interest in case of
default, being held to be a penalty by both the courts
below, the High Court should not have allowed interest at
the rate of 71 % compound with yearly rests, The High Court
seems to have been misled by a statement occurring in the
judgment of the trial Judge that the original rate of
interest was 7 1/2% compound with yearly rests. This is not
true and as a matter of fact, the original agreement was to
pay interest at 7 1/2 % simple. We consider it proper that
the mortgage money payable to the plaintiff should carry
interest at the rate of 7 1/2% simple up to the expiry of
the period of redemption which we fix at six months from
this date,
905
The result, therefore, is that we allow the appeal in part
and modify the judgment of the High Court. A preliminary
decree should be drawn up in favour of the plaintiff against
defendant No. 6 alone for a sum of Rs. 55,287 annas odd
which will carry interest at 7 1/2 % simple per annum..
Interest will be calculated on Rs. 52,287 on and from the
date of the mortgage, while on the balance of Rs. 3,000
interest will run from 5th November, 1930. We make no order
as to costs of this court or of the High Court. The
plaintiff will have his costs of the trial court.
Appeal allowed in part.
Agent for the appellant: M. S. K. Aiyangar.
Agent for respondent No. 1 : Ganpat Rai.