BHRIGUNANDAN PRASAD AND ORS .

THE APPELLATE OFFICER & ORS.

March 25, 1966 B

[K. N. WANCHOO, J.C. SHAH ANDS. M. S!KRI, JJ.J

Evacuee Interest (Separation) Act 64 of 1951, s. 9(1)-Mortgaged property of evacuee-Max; mum tiabilitu for interest payable to mort. gages fixed at five per cent per annum simple on principal money- C Provision c1oes not justify reopening of accounts and utilising th<f excess over five per cent towards reduction of principal.

The appellants were mortgagees of properties including a house on the basis of a mortgage-bond executed in 1928. The interest provided in the bond was 9% per annum compoundable annwrlly, In 1937 the house above referred to was sold to B subject to the earlier mortgage. In 1939 the appellants filed a suit against the original mortgagors and others including B for the amount due under the mortgage. Certain amounts towards the discharge of the liability under the

mortga:ge were received by the appellants before as well as after the filing of the suit. A preliminary decree was passed in favour of the appellants in 1942 and the final decree in 1945. In 1949, B was declared an evacuee. When in 1952 the appellants put their decree in execution the property was treated as "composite property" and the Custodian of Evacuee Property contended before the Competent Officer that the appellants were not entitled to any interest higher than five per cent per annum simple from the date of the mortgage under s. 9(1) of the Evacuee Interest (Separation) Act, 64 of 1951. The Custodian accordingly claimed that the entire transaction should be re-opened from the date of the mortgage and 'if more than five per cent simple interest had been received by the appellants the excess should be credited towards the principal amount. The Competent Officer held that the limit of five per cent could not apply before the Act came into force. The Appellate Officer however upheld the contention of the Custodian. The appellants thereupon filed a writ petition in the High Court which was dismissed in limine, By special leave they appealed to this Court.

HELD: Section 9(1) only deals with the liability of the mortgaged property which may still be due when the claim is made before the competent officer. Though the provision is retrospective in the sense that where the liability is still there, interest has to be calculated at five per cent per annum simple, there is nothing in the words of s. 9(1) which authorises the reopening of the accounts and utilising the excess over five per cent per annum simple. towards reduction of principal provided the payment of intert al l'.eady made in within the contractual rate. [61 F]

On the above view the maximum l'.ate of interest laid down in s. 9(1) was not anplicable before the date of the suit. But under s. 8(3) the decree of the Court was subject to s .. 9 and, therefore ter the date of th$ suit the said rate was applicable. rnirectlons ven B accordingly]. [61 HJ L/SiiSCl-6. 55 ,. ... ,.

SUPREME COURT REPORTS ·- (1966) SUP?'. S.C.l!.•

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. !02 of 1964.

App;:al by special leave from the judgment and order dated.

July 30 ,1962 of the Punjab High Court (Circuit Bench) at Delhi in Civil Writ No. 402-D of 1962.

B .

D. Goburdhan for the appellants.

S. G. Patwardhan and B. R. G. K. Achar for the respondents. The Judgment o(ihe Court was delivered by

Wanchoo, J. The only question raised in this appeal by special leave from the judgment of the Punjab High Court is the interpretation of s. 9 (I) of the Evacuee Interest (Separation) Act, No. LXIV of 1951 (hereinafter referred to as the Act). The question arises irr this way. The appellants were mortgagees of certain properties. in-· eluding a house, on the basis of a mortgage-bond dated July 19,

1928. The consideration of the bond was Rs. 25,000 and interest

D was provided at nine per cent per annum compoundable annually.

Out of the properties covered by the bond, one of the properties was sold to Bibi Chand Tara on October 23, 1937 subject to the earlier mortgage of 1928. In October 1949, Bibi Chand Tara was declared an evacuee.

In 1939 the appe11ant filed a suit against the orignal mortgagors and others including Bibi Chand Tara for the amount due under E the mortgage. A preliminary decree was passed in their favour in March 1942 and the final decree followed in April 1945. It appears that certain sums were received by. the appellants before they had filed the suit. Certain other sums were also received after the preliminary and final decrees. It further appears that certain Zamindari properties which were also included in the mortgage had been sold after the final decree and the money appropriated towards the F decree. Another house which was also included in the mortgage bbnd was sold later and the sale money was again appropriated towards the decree. Eventually the appellants pt the decree in execution in Novmber 1952 aainst the house in dispute for a sum of Rs. 60,000 and odd. There was a sale in that execution proceeding. but it was set aside on the application of the Assistant Custodian, Patna. Thereafter the appellants made an application G before. the Assistant Custodian for the recovery of the mortgae money claimed by tl:em and in this application their clahn was for

Rs. 40,000 and: odd, This application was a.lso dismissed as it was

file~ before a wrong' authority. Eventually the appellants filed a c!a1m. for. the sa'!le:amount before the Comp=tent Officer under the

:·ct._1asmuc~ as. the .property in dispute was composite property '' m , w~1ch , the evgcuee had mortgagors interest while the appellants u ·; ho, are 'no•rH:Vl!cuees .had mortgagees• interest v; h:ch had rip.ened

mt'? a decree for sale. This application was resisted by : the Custodian on a number of grounds. In the present appeal we are only_

BHRIGUNANDAN v. APPELLATE OFFICER (Wanchoo, J.) 57

concerned with one ground based on s. 9 (!) of the Act The contention of the Custodian was that the appellants were not entitled to any interest higher than five per cent per annum simple from the date of the mortgage under s. 9 (!) of the Act. Therefore the Custodian claimed that the entire transaction should be reopened from the date of the mortgage and the amounts already received by the appellants should be taken into account after allowing interest at five per cent per annum simple to them and if more interest had been paid that should be credited towards the principal and after such accounting the sum if any due on the mortgage could be claimed by the appellants.

The Competent Officer held that though the provisions of s. 9 (I) were retrospective to a certain extent they could not be stretched to mean that if a mortgagee had already realised interest at a rate exceeding five per centum per annum simple even before the Act came into force the excess would go to liquidate the principal amount proportionately. He therefore held that in the absence of special provision to the effect that past accounts should be reopened, the amount received as interest prior to the decree could not be taken into account. The Competent Officer further held that the principal money could not be reduced on account of any excess reaFsation of interest when such excess was realised before the Act came into force. He therefore ordered that (1) the amount of interest exceeding five per cent per annum before the institution of the suit would not reduce the principal amount, (2) the appellants would be entitled to simple interest at six per cent per annum, i.e. the rate at which interest was decreed in their favour in the mortgage suit from the date of the institution of the suit till November 26, 1952 on the principal sum only, (3) the appe1'ants would be entitled to interest at five per cent per annum simple from November 27, 1952, and (4) the appellants would also be entitled to costs of the suit decreed in their favour. The actual amount due was ordered to be worked out on these principles.

The Custodian took the matter in appeal to the Appellate Officer. The Appellate Officer held that on the words of s. 9 (1) the entire account must be made afresh on the basis of interest being allowed at five per cent per annum simple on the principal amount G from the date of the mortgage, and that any sums received over and above this would go to reduce the principal. He therefore

atlowed the appeal and set aside the order of the Competent Officer and ordered account to be taken in the manner indicated by him.

The appellants then applied to the Punjab High Court by a writ petjtion, which was dismissed in Umin~. Their application fur a leave to appeal to this Court was also dismissed. Thereafter they ,·. qbtained s_qecial leave from this Court, and that is how the matter l!astomeoefore us,

L'$5SC!-6 '

1$8 Bl'PREME COURT REPORTS

(1966] SUPP. B.C.R.

The Act deals with separation of the interest of an evacuee A from the interest of a non-evacuee in composite properties. Under s. 2 (d) "composite property" inter alia means any property which, or any property in which an interest, has been declared to bo evacuee property and in which the interest of the evacuee is subject to mortgage in any form in favour of a person, not being an B evacuee. Under s. 2 (hi. "principal money" in relation to a mortgage deed executed by an evacuee inter a/ia means in the case t>f mortgage deed which has not been executed by way of renewal of a prior mortgage deed. the sum of money advanced by way of loan at the time of the execution of the mortgage deed. Under s. 3 the Act and the rules and orders made thereunder have effect notwith C standing anything inconsistent therewith contained in any other law fur the time bcin!! in force or in any instrument having effect by virtue of any such law. save as otherwise expressJ.y provided in the Act. Sections 4 to 8 provide for machinery for separation of the claims of evacuees and non-evacuees in composite properties. Then we come lo s. 9(1) which is in these terms: -

"(() Notwithstanding anything to the contrary in any law or contract or any decree or order of a civil court or other authority. where the claim is made by a mortgagee, no mortgaed property of an evacuee shall, subject to the provisions of sub-section (2) be liable for the payment of interest at a rate exceeding five per cent per annum simple on the princinal money advanced or deemed to have been advanced."

It is unnecessary to refer to s. 9(2\ for we are not concerned with: that provision in the present appeal.

We mav however refer to s. 8(3) which is material and in these terms:_

"(3) If there is anv dispute as to whether a liability is a mortgage debt or not or whether any claim submitted

under section 7 exists. the Competent Officer shall decide such dispute :

Provided that a decree of a civil court (other than an ex narte decree passed after the 14th day of August. 1947) shall. suhject to the provisions of sec- G tions 9 and I 0. be binding on the Competent Officer in respect of any matter which has heen finally decided by such decree: and where any matter was decided bv an ex parte decree passed by a civil court after the 14th dav of August, 1947. the Competent Officer mav decide such matter afresh and on such decision being H made the ex parte decree shall be deemed to have uo effect."

f.

A •

JlRRIGUNANDAN v. APPLELLATE OFFICER (Wanchoo, J.) 59

Section 10 provides for separation of the interest of evacuee from the interest of claimants in composite properties and lays down how that wiil be done. Clause (b) specially provides for the manner in which the claim of a mortgagee will be dealt with by the Competent Officer, but we are not concerned with the details of tha.t provision.

It will be seen from a consideration of these provisions that the Competent Officer is bound by the decree of a civil court except an ex parte decree passed after August 14, 194 7 in respect of a mortgage subject to the provisions of ss. 9 and 10. Section JO indicates how the Competent Officer is to separate the interest of an evacuee from the interest of a non-evacuee, even in the case of a decree except an ex parte decree passed after August 14, 1947.

Section 9(1) provides for interest at five per cent per annum simple, and the decree in a mortgage suit except an ex parte decree passed after August 14, 1947 which is otherwise binding on the Competent Officer is subject to the provisions of s. 9(1) as to interest. It will also be noticed that there is no provision in the Act which specifically provides for reopening of transactions relating to mortgage and taking accounts from the date of the mortgage on the basis of interest provided in s. 9(i) and for crediting anything paid as interest over and above the rate provided in s. 9(1) towards principal. Prima facie therefore in the absence of such a provision it cannot be assumed that the legislature intended that a mortgage transa.ction should be reopened from the date of the mortgage and accounts taken afresh and anything paid in excess of five per cent per annum simple interest applied towards reduction of the principal amount. We have therefore to see whether there is anything in the words of s. 9(1) which leads to this result in the absence of a specific provision to that effect in the Act.

Section 9(1) begins with a non-obstante clause and lays down that it will apply notwithstanding anything to the contrary in any law or contract or any decree or order of a civil court or other authority. It then provides that where a claim is made by a mortgagee, as in the present case, no mortgaged property of an evacuee shall be liable for the payment of interest at a rate exceeding five per cent per annum simple on the principal money advanced. The key words in the provision are "no mortgaged property shall be liable". These words indicate that the Competent Officer when he comes to deal with a liability under a mortgage must calculate this liability on the basis that interest should be allowed only on the principal amount and only at the rate of five per cent per annum simple. The liability which the Competent Officer has to determine is with respect to the amount still due to the non-evacuee. Further as the non-obstante clause includes any decree of a civil court and as such decree is subject to s. 9(1) in view of the proviso to s. 8(3), the Competent Officer would not be bound by the calculation ol

interest made by the civiJ. court and would have to determine the

SUPREJU: COl1RT_REPOBT8 (1966)

SUPP.

8.C.B.

i..-.. ..... liability still due on the mortgage himself on the basis of simple interest at the rate of live per cent per annum on the principal sum advanced. Any calculation made by the civil court m arnving at the sum decreed by it on the basis of interest at more than live per cent per annum so far as the liability still due is concerned would not be binding on the Competent Ollicer and he will have to make his own calculations on the basis of simple interest at the rate of live per cent per annum. Similarly in a case where there is no decree and there is still some liabtlity on the mortgage, the Competent Officer would not be bound by the rate of interest mentioned in the mortgage deed and will calculate the liability still due on the basis of simple interest at the rate of live per cent per <rnnum

on the principal amount advanced. But s. 9(1) clearly shows that it applies only where the liability is still due and there is nothing in the words of s. 9(1) which gives power to the Competent Officer to reopen the account under the mortgage from the date of the mortgage and for that purpose treat anything paid as interest under the contract over and above five per cent per annum simple interest as pa}ment towards reduction of the principal amount Section 9(1) in our opinion only deals with liability still due and does not contemplate that any payments made already under the contract as interest should be taken partly towards interest and

partly towards principal if they are above live per cent per annum simple interest. As s. 9(1) speaks only of the liability of the mortgaged property it can only take in liability still due, for whatever has been paid in accordance with the contract towards interest is no longer a liability. This conclusion based on the words of s. 9(1) is enforced by the fact that there is no specific provision in the Act for reopening all accounts under the mortgage from the date of the mortgage, treating any interest paid already at a rate higher than five per cent per annum simple as going towards reduction of the principal sum.

Two situations may arise before the Competent Ofiicer in such circumstances when calculating the liability under a mortgage. In one case there may be no decree already passed in favour of the mortgagee. In such a case in calculating the liability still due on the mortgage, the Competent Ofiicer will calculate that liability on the basis of simple interest at the rate of five per cent per annum on the principal money advanced and may ignore the rate of interest mentioned in the contract. But even so, the words of

s. 9(1) do not give him power to reopen the accounts and whatever has been paid towards interest, if it is not in excess of the contractual rate of interest though it may be in excess of the rate of five per cent per annum simple interest, cannot be taken into account in reducing the principal amount. But whatever is still due under the mortgage will have to be worked out on the basis of H simple interest at the rate of five per cent per annum on the principal amount advanced. We may illustrate this by an example.

...

~ '

iHRIGUNAND.Ui 'II. Al'PlilLL.i.Tlil OFFICER (Wanclioo,, J.) Ill ·- Sllppose a mortgage was entered into on January 1, 1949 and tho interest therein is nine per cent per annum. Suppose that mterest for the years 1949 and 1950 has been paid at the contractllal rate but nothing has been paid thereafter. ln such a case, the amount paid in excess of five per cent per annum for .1949 and J950 will not go to reduce the principal; but thereafter interest will be calculated at five per cent per annum to arrive at the liability on the mortgaged property or wha.t is still due.

The second case which may arise before the Competent Officer would be a case where a decree has been passed on the mortgage bond except an ex parte decree passed after August 14, 1947. ln such a case also the Competent Otlicer cannot take into account anything paid in excess of five per cent per annum simple interest before the date of the suit provided it is not at more than the contractual rate; but as the decree is subject to s. 9(1), the Competent Officer will have to cakulate interest a.t five per cent per annum simple from the date of the suit and cannot award more

interest in calculating the liability still due under the mortgage.

Of course in both the cases if before the suit nothing has been paid towards interest or if something has been paid but it is less than five per cent per annum simple interest on the principal amount advanced, the Competent Officer in calculating the liability still dlle on the mortgage will have to allow five per cent per annum simple interest from the date of the mortgage to make up the deficiency, if any. As we read s. 9(1), we find no provision in it for reopening the account from the very beginning and utilisinJi

any interest paid in excess of five per cent per annum simple but within the contractual rate towards reducing the principal amount.

Section 9(1) only deals with the liability of the mortgaged property which may still be due when the ciaim is made before the Competent Officer. Though the provision is retrospective in the sense that where the liability is still there, interest has to be calculated at five per cent per annum simple there is nothing in the words of s. 9(1) which authorises the reopening of accounts and utilising the excess over five per cent per annum towards reduction of principal provided the payment of interest already made is within the contractual rate.

In this view the order of the Appellate Officer by which he ordered the reopening of the accounts and which was upheld by the High Court is incorrect. At the same time we are of opinion that the order of the Competent Officer is also not quite correct, though it is more in accord with the interpretation of s. 9(1) which we have indicated above. On the view we have taken the liability will be calculated thus: Any amount paid before the date of the suit i.e. December 11, 1939, provided it is not more than the contractual rate of interest though it may be above five per cent per annum simple will not go to reduce the principal amount. From the date of the suit till the date of the final decree i.e. April 25,

62 SUPllF.l!E COURT REPORTS ll966] SUPP. s.c.R.

1945, the appellants will only be entitled to simple interest at the rate of five per cent per annum on the principal amount advanced for the decree though binding on the Competent Officer is subject, under the proviso to s. 8(3), to s. 9(1). Further from the date of the final decree also the appellants will be entitled to simple interest at the rate of five per cent per annum on the principal amount only. Any payments made after the date of the suit will be adjusted first towards interest at the rate of five per cent per annum simple and any payment made in excess thereof will go to reduce the principal. The appellants will also be entitled to the costs of the suit which was decreed in their favour, but there will be no interest on such costs. The account will be made up accordingly to determine the liability due under the mortgage. Thereafter it will be for the Competent Officer to deal with the matter as provided under s. IO(b) or (cl.

We therefore allow the appeal. The writ petition is alloweJ and the order of the Appellate Officer is set aside and the order of the Competent Officer varied in the manner indicated above. The appellants will get their costs from the Custodian Evacuee Property.

Appeal allowed.

B l