Chandrasekaram Pillai v. Thangavelu Pillai — 1960 DIGILAW 281 (MAD)

Judgment.- What is the measure of relief which an agriculturaist debtor is entitled to under the Madras Act IV of 1938 when the debt is incurred after the Act with a stipulation to pay interest at a rate exceeding the prescribed limits of the statute and when payments towards interest are made and appropriated in terms of the contract of loan and the creditor sues to recover the balance due is the question that arises for decision in this Second Appeal. Judicial opinion in the matter is conflicting. One view is that whatever payments are made and appopriated implementing the contract between the parties, being voluntary, they cannot be ripped open to help the debtor to get the benefits of the Act. The other view is that such payments though volunary in the sense that the debtor abstained from claiming the statutory concessional rate of interest must be deemed to have been made by mistake of law warranting the readjustment of the rights of the parties in accordance with law. Much can be said in support of both the views, and it is not surprising to find a sharp cleavage of opinion on the subject between eminent Judges. Thangavelu Pillai, the plaintiff in O.S. No. 104 of 1957, on the file of the District Munsif’s Court, Thanjavur, executed a deed of simple mortgage, Exhibit B-1, dated 13th December, 1945, in favour of Chandrasekaran Pillai, the first defendant for a sum of Rs. 1,700. The deed provided for payment of interest at 9 per cent, per annum. The plaintiff is admittedly an agriculturist entitled to the benefits of Madras Act IV of 1938 and Madras Act I of 1955. There was an endorsement of payment of a sum of Rs. 250-7-0 dated 20th July, 1947 on the mortgage document. There was a second endorsement of payment dated nth April, 1951 of a sum of Rs. 1,070-13-0 on the document. The first endorsement of payment, Exhibit B-2, recites that the amount paid was towards the interest due on the mortgage upto the date of endorsement. The second endorsement, Exhibit B-3, recites that a sum of Rs, 570-13-0 was paid towards the interest due upto the date of endorsement and that the sum of Rs. 500 was paid and appropriated for the principal. The second endorsement, Exhibit B-3, recites that a sum of Rs, 570-13-0 was paid towards the interest due upto the date of endorsement and that the sum of Rs. 500 was paid and appropriated for the principal. The plaintiff claimed that notwithstanding the express recitals in the endorsements, Exhibits B-2 and B-3 stating that the payments were towards interest they should be deemed to be “open” payments entitling the debtor to have the amounts readjusted in accordance with the terms of the statute which prescribe that an agriculturist debtor shall not be made liable to pay interest at any rate more than 5½ percent, per annum. The plaintiff filed O.P. No. 82 of 1956 on the file of the District Munsif’s Court, Thanjavur, under section 83 of the Transfer of Property Act depositing the sum of Rs. 1,125 stated to be the correct amount due as scaled down by the provisions of the Act. The first defendant refused to receive the amount, and the petition was acordingly dismissed on 24th December, 1956. The suit was therefore filed for redemption of the mortgage, Exhibit B-1. The first defendant alone contested the suit. The second defendant remained absent and was set ex parte. The first defendant contended that on nth April, 1951 the date of the second endorsement, Exhibit B-3, it was settled between the parties that the balance of principal amount due to him was a sum of Rs. 1,200. There was a partition suit between the first defendant and his brother, Rajamani Pillai, O.S. No. 1 of 1951 on the file of the Subordinate Judge’s Court of Thanjavur. In the final decree in that suit accounts were taken till 22nd February, 1953 and the principal amount of Rs 1,200 due under Exhibit B-1 with interest at 6 per cent, from nth April, 1951 to 22nd February, 1953 was allotted as an asset due to the first defendant. The final decree in that suit is marked as Exhibit B-4 in the case. The first defendant pleaded that he will be entitled to the principal of Rs 1,200 as on 11th April, 1951, with subsequent interest thereon at 5½ per cent. The final decree in that suit is marked as Exhibit B-4 in the case. The first defendant pleaded that he will be entitled to the principal of Rs 1,200 as on 11th April, 1951, with subsequent interest thereon at 5½ per cent. The learned District Munsif of Thanjavur who tried the suit upheld the contention of the first defendant and granted a decree for redemption in favour of the plaintiff on his paying to the first defendant the amount of Rs 1,200 with subsequent interest from nth April, 1951 at 5½ per cent, per annum. The plaintiff preferred an appeal, A.S. No. 308 of 1937, on the file of the District Court of West Thanjavur at Thanjavur challenging the correctness of the Judgment and decree of the trial Court The learned District Judge allowed the appeal and modified the decree of the trial Court by substituting for the amount decreed by the trial Court the amount due as per the provisions of section 13 of Act IV of 1938. This Second Appeal has been preferred by the first defendant who seeks to have the decree of the trial Court restored. The learned District Munsif was of the opinion that there was in effect a settlement of accounts between the parties as on nth April, 1951 and that settlement precluded the plaintiff from falling back upon the provisions of the statute when he was sued for recovery of the balance due under the suit mortgage, giving effect to the settlement between the parties. The learned District Judge was of the opinion that there was no settlement of accounts as found by the trial Court but there were only payments made by the plaintiff to the first defendant towards interest and towards the principal also. After having found that there was no settlement of accounts, the learned District Judge followed the decision of a Division Bench of this Court in Srinivasa Rao v Abdul Rahim Sahib1, and held that section 13 of Madras Act IV of 1938 permitted reappropriation and readjustment of amounts paid by the debtor in accordance with the terms of the loan, so that the excess interest paid by the debtor can be made available for adjustment towards the principal. I agree with the learned District Judge in his finding of fact that there was no settlement of accounts between the parties. I agree with the learned District Judge in his finding of fact that there was no settlement of accounts between the parties. Exhibit B-5, relied upon by the first defendant to prove the settlement of accounts, shows that only penal interest was given up. It is therefore clear that what all happened between the parties was that the debtor-plaintiff paid certain specific sums of money to the creditor, the first defendant, towards interest which was calculated by the creditor at the rate provided for in the mortgage document and appropriated as such. Such payments having been made and appropriated, will it be open to the plaintiff to have the accounts recast so that the creditor the first defendant, will not be entitled to anything more by way of interest than the statutory rate of 5½ per cent, fixed as per the notification of the State Government of the year 1947? The object of the Madras Agriculturists Relief Act of 1938 as indicated by the Preamble to the statute is to provide for the relief of indebted agriculturists in the State of Madras. Section 8 of the Act provides the machinery for scaling down debts incurred before 1st October, 1932. In respect of those debts all interest outstanding on 1st October, 1937 shall be deemed to be discharged. Section 9 of the Act deals with debts incurred on or after 1st October, 1932 and provides that interest upon those debts shall be calculated upto the commencement of the Act at the rate applicable to the debt under the law, custom, contract or decree of Court or at 5 per cent, per annum simple interest whichever is less, and credit shall be given for all sums paid towards interest and only such amount as is found outstanding if any shall be deemed payable together with the principal amount. Section 13 governs debts incurred after the Act. Section 13 governs debts incurred after the Act. That section reads as follows: "In any proceeding for recovery of a debt, the Court shall scale down all interest, due on any debt incurred by an agriculturist after the commencement of this Act, so as not to exceed a sum calculated at 6¼ per cent, per annum simple interest that is to say, one pie per rupee per mensem simple interest or one anna per rupee per annum simple interest." Though the section prescribed the rate of interest at 6¼ per cent, by a subsequent notification of the State Government, it has been reduced to 5½ per cent. It must be noted that section 13 is different in pattern from sections 8 and 9 of the Act. Sections 8 and 9 use the expression "interest outstanding" while section 13 uses the expression "all interest due on any debt." Whether payments made and appropriated towards interest, as such, at a rate in excess of the prescribed statutory rate can be re-appropriated in an action by the creditor for recovery of the balance of the debt due came in for consideration in the decision in Srinivasa Rao v Abdul Rahim Sahib1 . In that case the debt was incurred under a promissory note dated 2nd April, 1944 which provided for payment of interest at 12 per cent, per annum. On 13th March, 1947 the debtor made a payment of Rs. 70 and endorsed it on the pronote, expressly stating that the payment was towards the interest due. On 8th June, 1949 there was another payment of Rs. 50 specifically towards interest. There were further payments of Rs. 35 on 23rd February, 1950 and Rs. 50 on 1st September, 1952 towards interest as such. Appropriating these payments towards interest at the contract rate the creditor sought to recover the balance. The debtor contended that the payment already made should be appropriated in the manner contemplated under section 13 of the Act and that no rate of interest higher than 5½ per cent, per annum should be charged against him. The facts of the case are thus clearly indistinguishable from the facts of the present case. The learned Judges of this Court, Govinda Menon and Ramaswami, JJ., upheld the debtor’s contention. The facts of the case are thus clearly indistinguishable from the facts of the present case. The learned Judges of this Court, Govinda Menon and Ramaswami, JJ., upheld the debtor’s contention. An earlier decision of this Court in Ramalakshmi v. Gopalakrishna Rao2, was relied upon on behalf of the creditor before the learned Judges who decided Srinivasa Rao v. Abdul Rahim Sahib1. But the learned Judges observed that in view of the decision of the Privy Council in Shiba Prasad Singh v. Srish Chandra3; the foundation on which the decision in Ramalakshmi v. Gopalakrishna Rao2, rested became shaky. Their Lordships at page 191 observed thus: " It is not a universal principle of law that money paid under a mistake of law cannot be recovered. Where a statute provides and regulates payments in a particular manner, and to a particular extent a person paying amounts in excess of that should be considered not to have done it willingly or voluntarily and with the object of making a present, but he must be deemed to have acted in ignorance of the law, and therefore, should be entitled to get back the amount." In Nainamul v. B. Subba Rao4, a Full Bench of the Andhra Pradesh High Court considered the following question which was referred to it: "Whether in the case of a debt incurred after the Act came into force a payment made expressly towards interest at the contract rate can be reopened and reappropriated towards interest payable under the provisions of section 13 of the Act " ? Subba Rao, C.J., as he then was, who delivered the opinion of the Full Bench accepted the decision of this Court in Srinivasa Rao v. Abdul Rahim Sahib1, as laying down the correct rule of interpretation of section 13 of the Act. At page 550 the learned Chief Justice observed as follows: "Unhampered by decided cases I shall proceed to consider the scope of section 13 having regard to the aforesaid declared object of the Act and the express words used in that section. The object of section 13 is to give relief to agriculturists, in the matter of interest in respect of a debt incurred after the Act. If such a debt is sought to be enforced, it is caught in the net of the scaling down process. The object of section 13 is to give relief to agriculturists, in the matter of interest in respect of a debt incurred after the Act. If such a debt is sought to be enforced, it is caught in the net of the scaling down process. At that stage all the interest due on the debt is reduced to the statutory level or, to put it differently whatever may be the contract rate of interest, it is replaced by the statutory rate. If the appropriations made earlier are not reopened, the intention of the statute would be defeated for the contract rate prevails over the statutory rate upto a stage.“ At page 552, the learned Chief Justice summed up the position thus: ”But, under the provisions of section 13 a creditor cannot recover interest at a rate higher than that prescribed thereunder. If a debtor pays interest at a higher rate than that which he is bound to pay under section 13 he pays it by mistake within the meaning of section 72 and therefore, he is entitled to recover it back or to set off the excess payments against the subsequent interest." I shall now refer to a Full Bench decision of this Court in S. M. Tharaganar v. Sankarapandia Mudaliar1. The occasion for constituting the Full Bench is set out by the order of reference by the learned Chief Justice as follows: "There can be no doubt that there are two decisions of two Division Benches of this Court taking different views on the main question which arises in this appeal. The two decisions are Ramalakshmi v. Gopalakrishna Rao2 and Srinivasa Rao v. Abdul Rahim Sahib 3. The learned Judges, in the latter case were inclined to the view that the decision in the earlier case was considerably shaken by certain observations in a subsequent Privy Council case. Even if that be so, the proper course would be to refer the question for decision by a Full Bench and this is referred accordingly." The appeal before the Full Bench arose out of dealings between the parties which were in the nature of a banker advancing moneys to his customer and the customer repaying the advances in instalments. The dealings were entered in a pass book. The dealings commenced on 2nd December, 194.3, when a sum of Rs. The dealings were entered in a pass book. The dealings commenced on 2nd December, 194.3, when a sum of Rs. 7,000 was advanced by the creditor to the debtor who agreed to pay interest at 10½ per cent, per annum. Subsequently payments were made. At the end of each year of account (the end of the month of Adi according to the Tamil Calendar) interest at the contract rate was debited against the borrower. There were also periodical settlements of accounts between the parties, by which the amounts due to the creditor were ascertained and an acknowledgement as to the correctness of the amount was also recorded in the pass book by the debtor signing in it in token of his assent. The last of such settlements was on 17th August, 1951, by which the debtor agreed to pay the creditor the sum of Rs. 19, 513-13-3 with interest thereon at 12 per cent. The creditor sought to recover from the debtor this sum of money by instituting the suit out of which the appeal arose. The debtors claimed that they were agriculturists entitled to the benefits of Madras Act IV of 1938 and that the settlement of accounts would not bind them and should be reopened and that they would not be liable to pay anything more than the principal amount actually advanced less payments calculating the interest at 5½ per cent, per annum. It was held by this Court that the defendants would not be entitled to relief by way of a reopening of the settled accounts and that the last of the settlements on which the suit was based should be deemed to be the debt incurred within the meaning of section 13 of the Act. Their Lordships held that the interest payable on that settled amount will alone be scaled down in accordance with that section. The real question that arose for consideration in that case was what was the debt which was sought to be recovered by the creditor from the debtor. The creditor founded himself on the last settlement of accounts. But the debtor wanted to have that settlement reopened. Their Lordships pointed out, rightly, if I may say so with respect, that there was no machinery provided for under section 13 of the Act to have settled accounts reopened and to trace back the debt to its inception. The creditor founded himself on the last settlement of accounts. But the debtor wanted to have that settlement reopened. Their Lordships pointed out, rightly, if I may say so with respect, that there was no machinery provided for under section 13 of the Act to have settled accounts reopened and to trace back the debt to its inception. The actual decision of the Full Bench does not in any way conflict with the decision in Srinivasa Rao v. Abdul Rahim Sahib3. At page 570 Ramachandra Iyer, J., who delivered the judgment of the Full Bench, observed thus: "The matter which then would arise for consideration would be as to how far an agriculturisit debtor who voluntarily agrees to pay interest at a rate higher than that prescribed by the Act, would be entitled to be relieved against his own agreement. The Act does not render the payment on or a contract to pay interest on a debt at a rate higher than that prescribed for each of the various cate gories, illegal. Nor is there any question of public policy involved when a higher rate of interest on a loan is agreed to by an agriculturist. Under the provisions of the Act relief to agriculturist debtors was granted by the Act itself discharging the whole or a portion of the interest on debts incurred prior to the Act. Section 8 discharged all outstanding interest on a debt incurred prior to 1st October, 1932, while in regard to debts incurred after that date but before the Act, section 9 discharged that portion of the interest which was above simple interest at 5 per cent, per annum. Future interest on those debts were regulated by section 12. Section 13 dealt with debts incurred after the Act. Under that section there is no provision for any statutory or automatic discharge of interest stipulated at a rate higher than that prescribed therein; such excess interest was only made irrecoverable if the creditor sought to enforce the debt in a Court of law. Section 13 dealt with debts incurred after the Act. Under that section there is no provision for any statutory or automatic discharge of interest stipulated at a rate higher than that prescribed therein; such excess interest was only made irrecoverable if the creditor sought to enforce the debt in a Court of law. There being thus neither a prohibition against a stipulation for payment nor an automatic discharge of higher rates of interest agreed to be paid by an agriculturist debtor, it cannot be said that when a creditor with the assent of his debtor added to the principal loan the interest accrued in terms of the contract, and the debtor entered into a fresh contract treating the consolidated amount as principal for the fresh loan, there would be anything illegal or even a failure of consideration in regard to the new loan." It is obvious that the learned Judge was only dealing with the question whether a settlement of accounts which involved an acknowledgment of liability by the debtor to pay interest at a rate higher than the statutory rate is liable to be reopened on the ground that it was unlawful. I am therefore of opinion that the authority of the decision in Srinivasa Rao v. Abdul Rahim Sahib1was not in any way undermined by the Full Bench decision. The Andhra High Court again considered the question in the decision in Punyavatamma v. H. V. Satyanarayana2 . The learned Chief Justice, Chandra Reddy C.J., agreed with the Full Bench ruling in Nainamul v. B. Subba Rao3, which had approved the decision of the Division Bench of this Court in Srinivasa Rao v. Abdul Rahim Sahib1. In referring to the decision of this Court in S. M. Tharaganar v. Sankarapandia Mudaliar4, the learned Chief Justice at page 338 observed as follows: "In Sheik Mansoor Tharaganar v. Sankarapandia Mudaliar4, the learned Judges thought that when a creditor renewed a promissory note, the debtor entered into a fresh contract treating the consolidated amount as principal for the fresh loan and that the new loan would constitute a debt incurred on the date of renewal. With great respect to the learned Judges we are unable to concur in this proposition. We do not regard a renewal as a fresh loan or as incurring debt within the purview of section 13 of the Act. With great respect to the learned Judges we are unable to concur in this proposition. We do not regard a renewal as a fresh loan or as incurring debt within the purview of section 13 of the Act. A debt is incurred only when the borrowing is made. It cannot be postulated that a debt is incurred each time a promissory note is renewed. The learned Judges also failed to appreciate the distinction between the expression ‘all interest due on any debt ‘occurring in section 13 and the expression ‘all interest outstanding’ in section 8. The former expression connotes ‘the interest that has accrued on the original debt', while the latter conveys the idea of 'the interest remaining to be paid’." I find myself completely in agreement with the judgment of Govinda Menon, J. in Srinivasa Rao v. Abdul Rahim Sahib1. The scheme of Madras Act IV of 1938 and the language of section 13 of the Act leave no doubt in my mind that the creditor is not entitled to take advantage of payments made to him by the debtor and deny the beneficial effects of the Act to the debtor. The words in section 13 of the Act, ‘the Court shall scale down all interest’ are of sufficiently wide amplitude to give jurisdiction to the Court to reappropriate amounts paid by the debtor in excess of the statutory rate of interest so as to bring the transaction between the parties in conformity with the statute. Apart from the statute I am also of opinion that the claim of the debtor to have excess payments made by him readjusted can be rested on the doctrine of mistake of law as embodied under section 72 of the Indian Contract Act. The Judicial Committee in Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi5held that where a lessee had made over payments of royalties to the lessor under the mistaken belief that it was legally due, he was entitled to recover the payments so made and have them adjusted or set off in accordance with the true nature of the transaction. At page 254 Lord Reid observed thus: “In this case there was not sufficient evidence to show why the lessee and his agents made the over payments. At page 254 Lord Reid observed thus: “In this case there was not sufficient evidence to show why the lessee and his agents made the over payments. They may have acted on inadequate information, they may have taken a wrong view of their legal rights or they may have continued paying at the old rates without giving any thought to the matter. But it is clear that there was no intention to make a present to the lessor of money which was not due. The money was paid under the belief that it was legally due. This belief was mistaken. In their Lordships’ view that is sufficient to bring the case within section 72 and therefore the cross-appeal must succeed.” In The Sales Tax Officer, Banaras v. Kanhaiya Lal1, the question arose whether payments of sales-tax made by an assessee which were not legally and properly due from the assessee could be recovered under section 72 of the Indian Contract Act on the ground that the payment was originally made under a mistake of law. Their Lordships referred to the decision of the Judicial Committee above cited with approval. At page 143, Bhagwati, J., observed as follows: “On a true interpretation of section 72 of the Indian Contract Act the only two circumstances. there indicated as entitling the party to recover the money back are that the monies must have been paid by mistake or under coercion. If mistake either of law or of fact is established, he is entitled to recover the monies and the party receiving the same is bound to repay or return them irrespective of any consideration whether the monies had been paid voluntarily, subject however to questions of estoppel, waiver, limitation or the like. If once that circumstance is established the party, is entitled to the relief claimed.” The vital consideration therefore is what was the mistake which occasioned the payment. In every case where a payment is made by a person thinking that it is legally due by him while in fact it is not so due a clear mistake of law arises. There may be circumstances, in a particular case, which might show that the debtor who makes the payment made it deliberately intending to waive the benefit of a particular enactment in his favour. There may be circumstances, in a particular case, which might show that the debtor who makes the payment made it deliberately intending to waive the benefit of a particular enactment in his favour. In a case governed by Madras Act IV of 1938 the debtor though an agriculturist might consider the fulfilment of the terms of his contract with the creditor as being more proper and just than to claim the benefit of the Act. Where that is so the debtor having waived the right, it may not be open to him at any stage later than the waiver to rely upon the statute for benefit in his favour. The doctrine Ignorantia juris neminem excus at will not stand in the way of the debtor from pleading a mistake of law entitling him to recover money mistakably paid. In a recent decision of the Judicial Committee in Kriri Cotton Co., Ltd v. Dewani2, Lord Denning referred to the said doctrine and observed as follows: “It is not correct to say that every one is presumed to know the law. The true proposition is that no man can excuse himself from doing his duty by saying that he did not know the law on the matter, Ignorantia juris neminem excusat. Nor is it correct to say that money paid under a mistake of law can never be recovered back.” I may also refer to the following observation of Lord Chelmsford in Earl Beauchamp v. Winn.3 “With regard to the objection, that the mistake (if any) was one of law, and that the rule ‘ignorantia juris neminem excusat’ appies, I would observe on the peculiarity of this case, that the ignorance imputable to the party was of a matter of law arising upon the doubtful construction of a grant. This is very different from the ignorance of a well-known rule of law. This is very different from the ignorance of a well-known rule of law. And there are many cases to be found in which Equity, upon a mere mistake of the law, without the admixture of other circumstances, has given relief to a party who has dealt with his property under the influence of such a mistake.” It must be pointed out that the English Law governing the rights of parties arising out of a mistake of law is different from that embodied under section 72 of the Indian Contract Act and this has been very clearly pointed by their Lordships of the Supreme Court in The Sales Tax Officer, Banaras v. Kanhaiya Lal.1 In my judgment there is no impediment in the way of the plaintiff to have the amounts paid by him reappropriated and readjusted in conformity with section 13 of Madras Act IV of 1938. The Judgment and Decree of the Lower Appellate Court are correct and this Second Appeal fails and is dismissed with costs. Leave granted. R.M. ------------- Appeal dismissed.