Dhanakotia Pillai. v. P. K. Narayana Iyer. — 1955 DIGILAW 165 (MAD)

Judgment This appeal raises an important question under the Madras Agriculturists Relief Act (IV of 1938). The defendant-judgment-debtor is the appellant. The suit was on a pronote for Rs.1,400, dated 5th July, 1948, executed by the defendant to the plaintiff with interest at 12 per cent. per annum. The defendant claimed relief under Act (IV of 1938) on the ground that the suit pronote was in renewal of an earlier pronote dated 9th July, 1945, for Rs.1,500 executed by the defendant in plaintiff’s favour. The main question that was considered by both the lower Courts was as to whether the suit pronote was in renewal of the earlier pronote or a fresh contract between the parties and whether the defendant was entitled to relief under section 13-A of the Madras Agriculturists Relief Act. Both the Courts found that it was a fresh contract and was not in renewal of the earlier pronote and that the suit pronote being after the Act the defendant would be entitled to relief only to the extent provided by section 13 of the Act by reducing interest on the suit pronote to 5 per cent. per annum. It is now contended that the suit pronote was really in renewal of the earlier pronote of the 9th July, 1945 (Exhibit A-1) for a sum of Rs.1,400 being the balance due after payment of the interest and a portion of the principal under the previous pronote, the rate of interest in Exhibit A-1 being 12 per cent. I have no hesitation in finding that the amount of the suit pronote represents the balance due under Exhibit A-1 after payment of interest at 12 per cent. the contract rate under Exhibit A-1, and a portion of the principal, and in that view the suit pronote is a renewal of the earlier pronote for the balance of the amount due thereunder. It was argued by Mr.Kuppuswami Ayyar for the defendant that the principles as to the re-opening of earlier transaction available under sections 8 and 9 of the Act should be applied to the present case. But the proper provision of the Act that is applicable to the suit debt, which is incurred after the commencement of the Act is section 13, where the only relief that an agriculturist is entitled to have is a reduction of interest calculated at 5½; per cent. per annum. But the proper provision of the Act that is applicable to the suit debt, which is incurred after the commencement of the Act is section 13, where the only relief that an agriculturist is entitled to have is a reduction of interest calculated at 5½; per cent. per annum. Notwithstanding that the suit pronote may be in renewal of an earlier pronote, the suit pronote is a debt which was only incurred after the commencement of the Act and as such section 13 alone is applicable. Sections 8 and 9 are applicable to debts incurred before and on or after the 1st October, 1932, respectively. Explanation III to section 8 and the first proviso to section 9(1) which provides for relief being granted even in respect of prior debts, however, have no application to a debt incurred after the commencement of the Act. In Thiruvengadatha Aiyangar v. Sannappan Servai1, a Bench of this Court held that all debts incurred after the commencement of the Act whether they be in discharge of prior debts or not will fall only under section 13 and section 9 is not applicable to such debts. As observed by Wadsworth, J., in the said decision “If it had been the intention of the Legislature to introduce the theory of renewals into the scaling-down operations in respect of debts incurred after the commencement of the Act, some specific provisions would have been made in this behalf.” In the absence of such a provision in section 13, the relief that could be granted to an agriculturist must be only within the limited scope provided for in section 13. Similar is the view taken in Krishnamurthi v. Narayana2, where it was held that there is nothing in section 13 of the Madras Agriculturists Relief Act, which imports the Explanation to section 8 and allows the Court to go behind the contract and that in a suit on a pronote of 1942 executed in settlement of previous debts of 1939, in giving relief under the Act section 13 can be applied to the suit contract only, but not to the previous debts which it superseded. Mr.Kuppuswami Ayyar, however, relied on a judgment of Rajamannar, C.J., in Mallikarjuna Rao v. Tripurasundari3. In that case the suit was for recovery of the amount due for principal and interest on a pronote executed on 6th April, 1945. Mr.Kuppuswami Ayyar, however, relied on a judgment of Rajamannar, C.J., in Mallikarjuna Rao v. Tripurasundari3. In that case the suit was for recovery of the amount due for principal and interest on a pronote executed on 6th April, 1945. The said pronote was in respect of principal and interest due under a prior pronote dated 8th April, 1942, which again was for an amount due under still prior pronote of 1939 and the origin of the defendant’s liability under the suit pronote arose on the first pronote of the 30th April, 1936. One of the contentions was that the suit pronote of 1945 was taken for an amount higher than what was due in accordance with the provisions of the Madras Act IV of 1938 and that there was failure of consideration in so far as the excess amount was concerned. The Subordinate Judge refused to accept the plea of failure of consideration and the learned Chief Justice following the unreported decision of a Division Bench of this Court consisting of Patanjali Sastri and Shahabuddin, JJ., in A.S.No.290 of 1944 accepted the plea and held that there was failure of consideration in respect of the excess amount. In the Bench decision in A.S.No.290 of 1944 referred to and followed by the learned Chief Justice the facts were as follows: In that case the suit was on a pronote, dated 25th January, 1940 and the pronote recited that it was executed for the amount of principal and interest found due till that day after deducting payments made under an earlier pronote, dated 13th February, 1934. One of the pleas taken by the defendants was that the suit pronote was not supported by consideration to the extent of the excess over the sum that was payable under the earlier pronote as scaled down under the Act. One of the pleas taken by the defendants was that the suit pronote was not supported by consideration to the extent of the excess over the sum that was payable under the earlier pronote as scaled down under the Act. The learned Judges finding that it was not the case of the plaintiff that the suit pronote was supported by any fresh consideration passing at the time of the execution apart from what was due under the earlier note of 1934 and observing that the plea that a pronote sued on was not supported by consideration to the extent of the payment made under the earlier note was open to the debtor under section 44 of the Negotiable Instruments Act, held that the plaintiff would not be entitled to recover anything more than what would be found properly payable under the earlier pronote of 1934. The principle laid down in the Bench decision and followed by the learned Chief Justice is applicable to the present case and is binding on me. The appeal has therefore to be allowed and the relief that the appellant-defendant would be entitled to is to re-open the earlier transaction Exhibit A-1, dated 9th July, 1945 and taking Rs.1,500 as principal advanced on that date and calculating interest at the rate provided under section 13 and after giving credit to the amounts paid, the plaintiff would be entitled to a decree to such amount as is found due for balance of principal and interest if any on the date of the decree. But the question has been raised whether the plea of failure of consideration would be open to the defendant at all. Section 44 of the Negotiable Instruments Act says:- “When the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of money, and was originally absent in part or has subsequently failed in part the sum which a holder standing in immediate relation with such signer is entitled to receive from him is proportionally reduced.” The point therefore is whether there has been really any failure of consideration as regards the suit note. The extent of the failure of consideration is arrived at from the application of the Act to the earlier note to such amount over and above the amount due under the earlier note as scaled down. The extent of the failure of consideration is arrived at from the application of the Act to the earlier note to such amount over and above the amount due under the earlier note as scaled down. The contention apparently is that under the earlier pronote Exhibit A-1 interest having been charged at 12 per cent. and since in respect of debts incurred after the commencement of the Act interest being provided at 5½ per cent. by a latter notification of the Government under section 13 of the Act it would not be open to any party to a debt evidenced by a negotiable instrument, as in the present case, to charge interest at a rate higher than that provided under section 13. The point that arises therefore for determination is whether it would not be open to parties to a loan transaction to charge interest at a rate higher than that provided in the Act if the borrower is an agriculturist within the meaning of Act IV of 1938. The Act, however, is not declaratory as to rates of interest which should be considered as proper and legal in the case of a borrowing by an agriculturist but only a remedial enactment intended to give relief to agriculturists, whose debts come up for adjudication in a Court of law, and who also can if they are so inclined, apply to the Court for a declaration of the amount of the debt due by them by applying the provisions of the Act. The Act, however, does not make it illegal for interest being charged and recovered at higher rates than that provided under the Act, even if the borrowing is by an agriculturist and unless the charging of interest at a rate higher than that provided by the Act and the appropriation or recovery thereof is considered to be illegal, there cannot be any failure of consideration. The failure of consideration can arise only by total or partial absence of payment of the consideration or on other grounds such as illegality. The failure of consideration can arise only by total or partial absence of payment of the consideration or on other grounds such as illegality. Section 23 of the Contract Act provides that the consideration or object of an agreement is lawful, unless it is forbidden by law; or is of such a nature that, if permitted it would defeat the provisions of any law, or is fraudulent or involves or implies injury to the person or property of another or the Court regards it as immoral or opposed to public policy and in each of these cases, the consideration or object of an agreement is said to be unlawful and every agreement of which the object or consideration is unlawful is void. It appears to me that notwithstanding that a Court can, under the provisions of Act IV of 1938, give relief to agriculturists applying the appropriate provisions thereof and scale down the debts in accordance with the principles and at the rate of interest provided, it would not make it illegal or unlawful to charge and recover interest at a rate higher than that provided in the Act, If an agriculturist chooses to enter into a transaction and borrows at a rate higher than that provided in the Act and discharges the debt by payment at the contract rate of interest it would not be open to him later to question the validity of the consideration and plead failure of consideration and recover the amount so paid. It is open to the parties, though the borrower is an agriculturist to agree upon such rates of interest as they may choose and settle their transactions at those rates even though the rates may be higher than that provided under the Act. In Shama Charan Misser v. Chuni Lal Marwari1, the suit was on two bonds and the second bond was for a certain sum of money, a part of which was interest upon the amount covered by the first bond and it was agreed between the parties that the whole amount of the consideration as mentioned in the bond should bear interest the result being that the obliger promised to pay interest upon the interest which was due upon the first bond. It was contended that inasmuch as a part of the consideration for his bond was unlawful according to section 23 of the Contract Act the plaintiff obligee was not entitled to recover having regard to the provisions of section 24 of that Act, any portion of the money covered thereby. The contention as to the unlawful nature of the consideration was based on certain provisions of the Santhal Regulation III of 1872 and Regulation V of 1893, which provided that all Courts having jurisdiction in the Santhal Parganas shall observe the following rules relating to usury namely, interest on any debt or liability for a period exceeding one year shall not be decreed at a higher, rate than two per cent. per mensem, notwithstanding any agreement to the contrary and no compound interest arising from any intermediate adjustment of account shall be decreed and so forth. Construing these provisions the learned Judges observed that: “There is no law or regulation laying down than an agreement between any two persons living in the Santhal Parganas to pay compound interest upon the amount borrowed is unlawful within the meaning of section 23 of the Contract Act. All that the law provides is that compound interest will not be decreed by any Court” and repelled the contention on the ground of failure of consideration. I am unable to find in the Agriculturists Relief Act any provision laying down that a transaction of borrowing between two persons, the borrower being an agriculturist within the meaning of agriculturist under Act IV of 1938 agreeing to pay 12 per cent, interest is unlawful within the meaning of section 23 of the Contract Act. The Act is intended to provide relief to agriculturists and has not laid down the lawful interest which a creditor could charge an agriculturist in any transaction which he might enter into with him and unless it is shown that interest at 12 per cent. which was charged under Exhibit A-1 is forbidden by law or would defeat the provisions of any law prescribing the rates of interest which alone can be contracted for with an agriculturist there is nothing preventing the plaintiff in this case from appropriating the amounts paid to him towards interest calculating at 12 per cent. and entering into a fresh transaction for the balance of the amount due under the earlier note. and entering into a fresh transaction for the balance of the amount due under the earlier note. Section 7 of the Act provides that notwithstanding any law, custom, contract or decree of Court to the contrary all debts payable by an agriculturist at the commencement of the Act shall be scaled down in accordance with the provisions of Chapter II of the Act. Unless a debt as defined in the Act comes to the notice of the Court either in a suit or in execution or in an application for scaling down, it is not affected by the Act. The correctness of the application of the principle of failure of consideration to a case like the present one requires to be further examined and I would have been inclined to refer this case to a Bench. But in view of the small stakes involved in this appeal I refrain from adopting the course but prefer to dispose of this appeal by allowing it as I am bound by the decision of the Bench in A.S.No.290 of 1944 and followed by the learned Chief Justice in Mallikarjuna Rao v. Tripurasundari1. I am, however, of the opinion that the doubt expressed as to the correctness of the said two decisions requires to be resolved by an authoritative pronouncement. With these observations the appeal is allowed, However, this is a case in which I should grant leave to appeal. Leave granted accordingly. No order as to costs of the second appeal. The plaintiff will get proportionate costs on the amount allowed in the Court below. R.M. ----- Appeal allowed.