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1964 DIGILAW 274 (KER)

KUNJAN KELU v. SANKARAN RAMAKRISHNAN

1964-09-23

M.MADHAVAN NAIR, M.S.MENON, P.GOVINDA NAIR

body1964
Judgment :- 1. In these petitions under Art.227 of the Constitution, the question is whether a mortgagor, seeking to discharge a mortgage and lease-back, under S.11 (6) of the Kerala Agriculturists Debt Relief Act, 1958 (hereinafter called the Act) is entitled to the benefit of S.5 of the Act. 2. The question has been discussed before us at great length, particularly with reference to the retrospective operation of the fiction enacted in S.11 (6) (a) of the Act, the absence of an expression to deem the rent stipulated in the lease-back to be interest on the mortgage money, the limited nature of the provision for interest in S.11 (6) (b) for the period after the commencement of the Act, the significance of the expression 'sums paid or credited towards interest' in S.5 (1) (a) (i), the ambit of the provisions in Sub-sections (2) and (6) of S.4 of the Act, and the diverse judicial observations in 1963 KLT. 317,1963 KLT. 332, 1963 KLT. 1093,1964 KLT. 243, ILR.1964-1 Kerala 297 and 1964 KLT. 732. We presume the matter has crystallised now. 3. The relevant provisions of the Act read thus: S.11(6) ".... where the property mortgaged has been leased back to the mortgagor by the mortgagee.... (a) the mortgage shall be deemed to be a simple mortgage from the date of the lease-back and the provisions of this Act shall apply to the debt covered by the mortgage; (b) the interest payable on the mortgage amount after the commencement of this Act shall be at five pet cent per annum". S.5(1)(a) "For determining the amount of a debt.... S.5(1)(a) "For determining the amount of a debt.... for the purpose of payment under this Act, notwithstanding anything contained in any law, contract of decree or order of court, (i) interest shall be calculated at the rate applicable to the debt under the law, custom, contractor decree or order of court under which it arises or at five per cent per annum simple interest, whichever is less, and credit shall be given for all sums paid or credited towards interest and only such amount as is found outstanding, if any, as interest thus calculated, shall be deemed payable together with the principal amount or such portion of it as is due; and (ii) notwithstanding anything in clause (i) not more than one-half of the principal shall be deemed payable or to have been payable towards interest which accrued due till the commencement of this Act. If the amount paid or credited towards interest exceeds the amount payable under clause (i) or clause (ii) such excess shall.be credited towards the principal and the balance, if any, and future interest alone shall be recoverable." 4. The mortgagor contends that as the mortgage has to be 'deemed a simple mortgage from the date of the lease-back', possession of property has to be deemed not to have passed to the mortgagee thereunder and therefore the existence of the lease-back has to be ignored and the stipulation therein for payment of rent has to be deemed to be one for interest on the mortgage amount, whereupon S.5 will be attracted to the transaction. The mortgagee, on the other hand, argues that in the absence of an express provision in the Act to deem the rent paid as interest such a fiction should not be created by the court to reopen transactions already closed and that the provision in S.11 (6) (b) for interest after the Act indicates that the Legislature did not contemplate interest to have been payable before the Act and, alternatively, that if it did mean so the provisions of S.11 (6) would be violative of Art.14 and 19 of the Constitution. 5. S.11 (6) (a) of the Act directs that a possessory mortgage shall be deemed to be a simple mortgage from the date the property mortgaged has been leased back to the mortgagor. 5. S.11 (6) (a) of the Act directs that a possessory mortgage shall be deemed to be a simple mortgage from the date the property mortgaged has been leased back to the mortgagor. That means that the mortgagee has not been in possession and has not leased the property to the mortgagor and that the mortgagor has been in possession of the property mortgaged in his own right independent of any lease to him. If that be so, no rent could have been payable by the mortgagor to the mortgagee at any time under the lease-back. Such seems to be the inevitable consequence of the deeming provision that relates back to the date of the lease-back. Then the only character that can be attributed to the payment made by the mortgagor to the mortgagee since the date of the lease-back is either the mortgage money or interest thereon. Admittedly it is not the former; then it must be the latter & to all interests paid before, or remaining due on the date of the Act S.5 applies by force of its own expression. The argument that the only provision regarding interest under transactions dealt with in S.11 (6) is the clause (b) therein, which deliberately avoids any reference to the. period before the commencement of the Act and thereby leaves that period to be governed by the contract between the parties in the lease-back, does not seem convincing. To us the Act appears to deal with all interests paid before or remaining due at the commencement of the Act in its S.5, and interests thereafter in S.4 (2) and 11 (6) (b). 6. The opening words of S.5 'For determining the amount of a debt.. .for the purpose of payment under this Act' indicate the scope of that Section as being confined to the quantification of the liability as on the date of the Act, and the word 'debt' in Sub-Sections (1) and [2] of S.4 and Sub-section [6) [a] of S.11 refer to the liability thus quantified. The provision for interest after the commencement of the Act in Sub-section (2) of S.4 and sub-section (6) (b) of S.11 then fall in place; and their fields of operation are defined by Subsection (6) of S.4. 7. The provision for interest after the commencement of the Act in Sub-section (2) of S.4 and sub-section (6) (b) of S.11 then fall in place; and their fields of operation are defined by Subsection (6) of S.4. 7. The contention that the above view would perpetuate a discrimination between possessory mortgagees who have leased back the property to the mortgagor and those who have retained the property in their possession or leased the same to a stranger, does not appeal to us. The Act is designed to ameliorate the condition of agriculturist-debtors; and in doing so it treats the apparent tenor of a possessory mortgage to the mortgagee, followed by a lease of the property by the mortgagee back to the mortgagor, not to represent the reality of the transaction, and regards the possession of the property by the mortgagor himself as indicative of the reality of the transaction being a simple mortgage, and the lease-back as a camouflage for payment of interest that may not normally be approved by law. We find that the classification of possessory mortgages as those followed by possession and those not followed by possession in fact, is a real and reasonable classification consistent with the object of the Act, and that therefore the impugned provisions do not offend Art.14 of the Constitution. We do not find any force in the contention that the deprivation of the rent due to the mortgagee under the lease-back offends the right of property guaranteed by Art.19 (1) (f) of the Constitution. Ameliorative legislations designed to prevent rack-rents and usurious interests have always been held justified as measures preventing unconscionable bargains. No property of the mortgagee is really affected by the provision, which only prevents him from demanding from others payments not sanctioned by the law. The challenge of constitutionality of the provisions of the Act dealt with above is therefore over-ruled. 8. It then follows that in the case of a possessory mortgage coming within the scope of S.11 (6) of the Kerala Agriculturists Debt Belief Act, 1958, right from the date of the lease-back the mortgagee was entitled only to interest on the mortgage money advanced, and that all rents paid or in arrears under the apparent lease-back, have to be treated as interest subject to the provisions of S.5 of the Act. We are in respectful agreement with the. dicta expressed by T. K. Joseph Ag. We are in respectful agreement with the. dicta expressed by T. K. Joseph Ag. C. J. in 1963 KLT. 332 concurred in by Mathew, J. and reiterated by one of us, Govindan Nair, J. in 1964 KLT. 732; and over-rule the observations to the contrary expressed by another of us, Madhavan Nair, J. in 1963 KLT. 317 and by Raman Nayar, J. in 1963 KLT. 1093. 9. O. P. No. 604 of 1964 is therefore allowed and O. P. No. 721 of 1964 is dismissed. We make no order as to costs in these petitions.