Bhrigunandan Prasad & Ors Vs. The
Officer & Ors [1966] INSC 85 (25 March 1966)
25/03/1966 WANCHOO, K.N.
WANCHOO, K.N.
SHAH, J.C.
SIKRI, S.M.
CITATION: 1966 AIR 1683 1966 SCR 55
ACT:
Evacuee Interest (Separation) Act 64 of 1951,
s. 9(1)Mortgaged property of evacuee-Maximum Liability for interest payable to
mortgages fixed at five per cent per annum simple on principal money Provision
does not justify reopening of accounts and utilising the excess over five per
cent towards reduction of principal.
HEADNOTE:
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 annually. 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 mortgage 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 rib-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 interest already made in within the contractual rate. [61 F] On the
above view the maximum rite of interest laid down in s.(1) was not applicable
before the date of the suit. But under s. 8(3) the decree of the Court was
subject. to s. 9 and therefore after the date of the suit the said rate was
applicable. Directions 'given accordingly [61 H] L/S5SCI-6 56
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 102 of 1964.
Appeal 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.
D. Goburdhan for the appellants.
S. G. Patwardhan and B. R. G. K. Achar for
the respondents.
The Judgment of the 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 (1) of the
Evacuee Interest (Separation) Act, No. LXIV of 1951 (hereinafter referred to as
the Act). The question arises in this way. The appellants were mortgagees of
certain properties, including a house, on the basis of a, mortgage-bond dated
July 19.
1928. The consideration of the bond was Rs.
25,000 and interest 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 appellant filed a suit against
the original mortgagors and others including Bibi Chand Tara for the amount due
under 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 decree. Another house which
was also included in the mortgage bond was sold later and the sale money was
again appropriated towards the decree.
Eventually the appellants put the decree in
execution in November 1952 against 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 before the
Assistant Custodian for the recovery of the mortgage money claimed by them. and
in this application their claim was for Rs. 40.000 and. odd. This application
was also dismissed as it was filed before a wrong authority. Eventually the.
appellants filed a claim for the same. amount before the Competent Officer
under the Act.. inasmuch As the property in dispute was composite property in
Which, the evacuee had mortgagor's interest while the appellants who-are
non-evacuee's had mortgagees' interest which had ripened into a decree for
sale. This application was resisted by the Custodian on a number of grounds. In
the present appeal we are only.
57 concerned with one ground based on s. 9
(1) 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 (1) 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 (1) 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 realisation 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 appellants 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 from-.' the date; of the. mortgage and that any sums
received over above this would go to reduce the principal. He therefore allowed
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 petition, which was dismissed in limine. Their application
for a leave to Appeal to this Court was also dismissed. Thereafter they
,obtained special leave from this:
Court, and, that is how the matter has come
before us L/S5SCI--6 58 The Act deals with separation of the interest of an
evacuee 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 be 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 evacuee.
Under s. 2 (h), "principal money" in relation to a mortgage deed
executed by an evacuee inter alia means in the case of 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 there under have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in any instrument
having effect by virtue of any such law, save as otherwise expressly 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 to S. 9(1)
which is in these terms:
"(1) 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 mortgaged property
of an evacuee shall, subject to the provisions of subsection (2) be liable for
the payment of interest at a rate exceeding five per cent per annum simple on
the principal 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 may however refer to s. 8(3) which is
material and in these terms:
"(3) If there is any 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 parte decree passed after the 14th day of August, 1947)
shall, subject to the provisions of sections 9 and 10, be binding on the
Competent Officer in respect of any matter which has been finally decided by
such decree-, and where any matter was decided by an ex parte decree passed by
a civil court after the 14th day of August, 1947, the Competent Officer may
decide such matter afresh and on such decision being made the ex parte decree
shall be deemed to have no effect." 59 Section 10 provides for separation
of the interest of evacuee from the interest of claimants in composite
properties and lays down how that will 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 that 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, 1947 in respect of a mortgage
subject to the provisions of ss. 9 and 10. Section 10 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(1) 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 transaction 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 nonobstante 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 of interest made by the civil court and would have to determine
the 60 liability still due on the mortgage himself on the basis of simple
interest at the rate of five per cent per annum on the principal sum advanced.
Any calculation made by the civil court in arriving at the sum decreed by it on
the basis of interest at more than five per cent per annum so far as the
liability still due is concerned would not be binding on the Competent Officer
and he will have to make his own calculations on the basis of simple interest
at the rate of five per cent per annum. Similarly in a case where there is no
decree and there is still some liability 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 five per cent per annum 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 payment 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 five 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
Officer 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 Officer 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 simple interest at the rate of five per cent per
annum on the principal amount advanced. We may illustrate this by an example,
61 Suppose a mortgage was entered into on January 1, 1949 and the interest
therein is nine per cent per annum. Suppose that interest for the years 1949
and 1950 has been paid at the contractual rate but nothing has been paid
thereafter.
in such a case, the amount paid in excess of
five per cent per annum for 1949 and 1950 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 what 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. In such a case
also the Competent Officer 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 calculate interest at 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 due 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 utilising 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 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 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 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. 10(b) or (c).
We therefore allow the appeal. The writ
petition is allowed 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.
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