Case: Sardar Samsher Singh Vs. Raja Sardar Narain And Others

On March 1, 1924, Sardar Nihal Singh, the predecessor of the appellant before us, borrowed a sum of Rupees one lakh from Raja Durga Narain Singh, predecessor of the Respondents on mortgage of a house in Butlergunj, Lucknow and also the entire Zamindari interest in a village Parsora. Interest was 8 per cent. per annum compound with six monthly rests. In 1932 Raja Durga Narain Singh brought a suit for recovery of Rs. 1,83,791-5-9 on account of principal and interest due on the mortgage, by sale of the mortgaged property. In this suit the Subordinate Judge, Lucknow, made a preliminary decree declaring the amount due to the plaintiff on the mortgage calculated upto the 29th day of March, 1935, to be Rs. 1,83,791-5-9 up to the date of the suit, Rs. 49,280-2-6 as the amount due on account of interest thereupon from March 19, 1932, the date of the suit to March 29, 1935, the date fixed for payment. A sum of Rs. 4,314-2-9 was awarded as the cost of the suit. The defendant was ordered to pay this total sum of Rs. 2,37,385-11-0 before the 29th day of March, 1935, with future interest at 6 per cent per annum simple on the principal sum of rupees one lakh. The amount not having been paid on that date, the Court on an application made by the mortgagee-decree-holder made a final decree on May 9, 1935, directing sale of the property for recovery of the sum of Rs. 2,37,503-5-6 with future interest as in the preliminary decree, (this sum being the total of Rs. 2,37,305-11-0 of the preliminary decree, Rs. 116-10-1 the interest from March 30, 1935, and rupee one the cost of the final decree).      2. An application for revision under S. 115 of theCode of Civil Procedurein connection with this decree was rejected by the Chief Court of Oudh on April 20, 1937. Before this, on October 26, 1936, an application had been made by Sardar Nihal Singh under section 4 of the U. P. Encumbered Estates Act, requesting the provisions of the Act to be applied to him. After this application came before the Special Judge in accordance with the provisions of S. 6, the mortgagee-decree-holder Raja Durga Narain Singh filed a written statement of his claim on September 30, 1937, and stated that the amount due to him on the basis of his decree was Rs. 2,51,904-8-6 including Rs. 14,300 as interest subsequent to the final decree till September 30, 1937, and a sum of Rs. 51-3-0 the decree for costs in his favour by the Oudh Chief Court when rejecting the mortgagors application for revision. He prayed that a decree for Rs. 2,51,904-8-6 be passed in his favour against the applicant Sardar Nihal Singh and his property. The applicant contested this claim pleading that the principal amount borrowed from the claimant being rupees one lakh the claimant was not entitled to recover any sum as interest thereupon in excess of the principal amount under S. 14 of the Encumbered Estates Act. This plea was rejected by the Special Judge who held that the claimant was entitled to Rs. 2,37,503-5-6 for which the final decree was passed, and also Rs. 51-3-0 as costs in the matter of revision application and further to 6 per cent per annum interest on rupees one lakh from May 29, 1935, the date of the final decree till the date of the application under the Encumbered Estates Act, i.e., October 26, 1936. Accordingly he gave the claimant a simple money decree for Rs. 2,46,338-8-6 with proportionate costs and future interest at the rate of 4 per cent. per annum simple from the date of application till realisation.      3. On appeal, the Chief Court of Oudh rejected the appellants contention that the Special Judge was bound by S. 14 of the Act to limit the decree to a sum of rupees two lakhs only and held that in so far as the preliminary decree found Rs. 1,83,791-5-9 as the amount due on the mortgage on March 29, 1932, it was not inconsistent with S. 14 of the Encumbered Estates Act, and so the Special Judge was bound to accept this finding under S.. It held however that in so far as this decree allowed interest pendente lite on the above amount from March 19, 1932 to March 29, 1935, at 8% per annum, it was inconsistent with sub-s. 7 of S.. The Chief Court accordingly held that this interest pendente lite must be reduced to 4 1/4% simple. After saying that a sum of Rs. 4,314-2-9 would be added on account of costs, rupee one should be added on account of the costs of the final decree and Rs. 51-3-0 as costs of a revision application, the Court held that the principal amount of Rs. 1,00,000 shall carry interest from March 29, 1935, till the date of application under S. 4 of the Encumbered Estates Act, viz., October 26, 1936, and that the aggregate of these figures shall carry interest from October 27, 1936, till realisation at 4 per cent. per annum. It directed a decree for the sum thus found to be substituted for that passed by the Subordinate Judge. An application for leave to appeal to the Privy Council against this decree was made on January 13, 1947. This application was disposed of on April 14, 1953. Holding that the valuation of the suit was well over Rs. 20,000 and the value of the appeal to the Supreme Court was Rs. 41,971-2-9 the Chief Court gave, in view of the modification made by it in the lower courts decree, a certificate that the case fulfils the requirements of S. 110 of theCode of Civil Procedureand that the applicant had a right to appeal to the Supreme Court. On the strength of that certificate the present appeal was filed.      4. When the appeal came up for hearing before a Bench of four judges of this Court Mr. Andley, on behalf of the respondents stated that in this case he was raising a constitutional point. Thereupon the Court directed that the matter be posted before the Constitution Bench. That is how the appeal has come up for hearing and final disposal before us.      5. Mr. Andley stated before us that the Constitutional point which he had wanted to raise was whether the judgment of the Chief Court was one of affirmance under Art. 133 (1) of the Constitution but that he did not wish to pursue this point. As Mr. Andley does not press his constitutional point, no further discussion of this is necessary.

Court's reasoning:
On behalf of the decree-holder-claimant it is contended that all that is necessary to save inconsistency with Section 14(4) (a) is that the principle that the amount of interest shall not exceed the amount of the unpaid principal has been followed, in passing the decree and the fact that the result of the finding would be that on the date of the application u/s. 4 of the Act the interest due would exceed the portion of the principal unpaid on such date is of no consequenceThis contention cannot in our opinion be accepted10. The requirement of sub-s. 4(a) of S. 14 is that "the amount of interest held to be due on the date of the application shall not exceed that portion of the principal which may still be found to be due on the date of the application". The words "on the date of the application" cannot be ignored. There can be no doubt that these words "on the date of the application" were deliberately used in the sub-section for the purpose of benefiting the landlord applicant to this extent that whatever the interest due on the contract may amount to, it will be limited to the amount of the principal found still remaining due, on the date of the application. When the Legislature goes further and provides that if prior to the application a decree has been made on the basis of the loan the findings of the Court which passed the decree shall be accepted but forbids such acceptance if such finding is inconsistent with the provisions of S. 14, the intention clearly is that the fact that there has been a decree will not make any difference as regards the duty of the Special Judge to give the applicant the benefit of the provisions of S. 14. When the Court passed the decree, there was no application under the Encumbered Estates Act, and so, there could be no question of the Court then complying with the provisions of S. 14(4) (a). Even so, when the Special Judge has to reject such of the findings as are "inconsistent" with S. 14, he must find out the effect of the several findings of the Court to ascertain whether there is such inconsistency11. Where the consequence of the finding of the court which passed the decree is that court which passed the decree is that the provisions of S. 14(4) (a) about the amount of interest due on the date of the application not exceeding the unpaid principal on that date are contravened, the finding should be held to be inconsistent with those provisions. In saying that if in the decree the court did not allow interest as on the date of the suit to exceed the principal then remaining due there is no inconsistency with S. 14(4) (a), the respondents counsel is in effect asking us to read for the words "in so far as they are inconsistent with the provisions of S. 14" the words "in so far as they would have been inconsistent with the provisions of S. 14, if the date of the institution of the suit be deemed to be the date of the application under S. 4". For this we cannot find any justification. Not only would this defeat the beneficial purpose of the legislation under S. 14(4)(a); but this will also not be the natural meaning of the words "in so far as they are inconsistent with the provisions of S. 14."12. The Chief Courts view that the Special Judge has merely to see whether the Civil Court that passed the decree could have passed the decree which it did pass if that court had to apply the provisions of S. 14, treating the date of the institution of the suit as the date of the application cannot therefore be accepted as correct.The same view had been taken by the Chief Court of Oudh in an earlier decision, of Ramsagar Prasad v. Mst. Shayama, AIR 1939 Oudh 75. A Full Bench of the Allahabad High Court had in Rukun Uddin v. Lachmi Narain ILR (1945) All 307 : (AIR 1945 All 113  ) to consider the question whether a finding in a decree made by a civil court that the creditor is entitled to interest only at the rates specified in U. P. Agriculturists Relief Act was in consistent with the provisions of S. 14 of the U. P. Encumbered Estates Act and was therefore not binding on the Special Judge hearing an application under the U. P. Encumbered Estates Act. They held that such a finding must be held to be inconsistent with the provisions of S. 14 and could therefore not be binding on the Special Judge. There can be no doubt about the correctness of this view, for, as has been pointed out above S. 14(4) (c) provides that the provisions of the U. P. Agriculturists Relief Act shall not be applicable to proceedings under the Encumbered Estates Act. One of the learned Judges Mr. Justice Verma referred with approval in the course of his judgment to the view taken in Ramsagar Prasads Case, AIR 1939 Oudh 75.For the reasons mentioned earlier however we are of opinion that the view in Ramsagar Prasads Case, AIR 1939 Oudh 75 which has been followed by the Chief Court in the present case is wrong13. Our conclusion therefore is that the Special Judge is even where there has been a decree by a civil court in respect of a loan bound to follow the provisions of S. 14(4)(a) of the Act so that the amount of interest which he can hold to be due on the date of the application must not exceed the portion of the principal found to be due on the date of the application. Accordingly in the present case the Special Judge should have held the amount of interest due on the date of the application, i.e., October 26, 1936, to amount to rupees one lakh only, that being the principal which was still due on that date. Under the provisions of sub-S. 7 of S. 14 the Special Judge has to "pass a simple money decree for such amount, together with any costs which he may allow in respect of proceedings in his court and of proceedings in any civil court stayed under the provisions of this Act, together with pendente lite and future interest at a rate not greater than the rate specified in S. 27."It was in view of this provision that the special Judge and High Court allowed interest at the rate of 4 per cent per annum. The proper decree the Special Judge should have passed therefore was one for rupees two lakhs for the loan with permissible interest, plus Rs. 4,314-2-9, Rs. 51-3-0 and rupee one on account of costs, that is, for a total sum of Rs. 2,04,366-5-9 with proportionate costs with interest pendente lite and future interest at the rate of 4 per cent. per annum simple from the date of the application, i.e., October 26, 1936, till realisation.