Cheruvu Nageswaraswami Vs. Rajah
Vadrevu Viswasundara Rao & Ors  INSC 44 (18 May 1953)
MAHAJAN, MEHR CHAND HASAN, GHULAM BHAGWATI,
CITATION: 1953 AIR 370 1953 SCR 894
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.
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
Periannia v. Sellappa (I.L.R. 1939 218)
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
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 constituted 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
(3)Rs. 25,000 paid by the plaintiff by
endorsing in favour of defendant No. 1 a cheque for that amount 896 drawn in
his name by the Co-operative Central Bank, Ramchandrapuram on the Central Urban
(4) Rs. 937-8-0, the amount paid in cash by
plaintiff 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 897 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 898 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 to.
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 899 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,
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 crossobjection 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 consideration. 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.
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.  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.  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 nonagriculturist
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 interest 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.