KUNWAR RAJENDRA BAHADUR SINGH Vs. KUNWAR DALIP SINGH

JUDGEMENT

(1.) This is an appeal from and judgment and decree dated 13 April 1942, of the Chief Court of Oudh at Lucknow, which modified a judgment and decree dated 25 May 1938, as amended by a judgment and decree dated 9 May 1940, or the Special Judge, First Grade, Barabanki, under the United Provinces Encumbered Estates Act, 1934 (hereinafter referred to as "the 1934 Act"). The questions raised in the appeal relate to the construction and effect of the 1934 Act as amended by the United Provinces Encumbered Estates Amendment Act, 1939 (hereinafter called "the 1939 Act"). The facts giving rise to the appeal are not in dispute.

(2.) On 23 January 1912, Raja Raghuraj Bahadur Singh borrowed Rs. 5,00,000 from Raja Sir Harnam Singh, carrying interest compoundable half-yearly on the terms of a mortgage deed. On 20 October 1915, Raja Raghuraj Bahadur Singh executed a fresh mortgage (hereinafter referred to as "the mortgage of 1915") in favour of Raja Sir Harnam Singh, in substitution for the mortgage of 1912 for securing Rs. 5,71,490-13-9 carrying interest at 6 per cent. per annum payable on 30 June and 31 December in each year, with a provision that if any half-yearly instalment of interest was not paid on the due date it should be added to principal and carry interest at the rate of 6 per cent. per annum. The rate of interest was subsequently raised, but nothing turns upon this. On 8 January 1926, Raja Sir Harnam Singh obtained a preliminary decree on the mortgage of 1915 which decree was made final on 26 February 1927. In the year 1925, the mortgagor having died, his sons divided the estate and liabilities between themselves. One of the brothers paid off his share of the mortgage debt under the mortgage of 1915, and on 17 October 1929, the other son, namely the appellant, Kunwar Rajendra Bahadur Singh, executed a fresh mortgage (hereinafter referred to as "the mortgage of 1929") in favour of Raja Sir Harnam Singh to secure the appellant's share of the mortgage debt amounting to Rs. 7,60,108-11-9. Interest was to be payable at the rate of 7 per cent. per annum and there was a provision for capitalising interest in arrear similar to that in the mortgage of 1916. In February 1936, a decree for sale was made of the property comprised in the last mentioned mortgage. In April 1935, the Act of 1934 came into operation. By S. 4, the right is given to any landlord who, or whose immovable property, is encumbered by private debts, to make an application to the Collector of the District re-questing that the provisions of the Act be applied to him. The Collector is required to forward the application to the Special Judge appointed under the Act. Section 14 provides for the hearing of the application by the Special Judge. Sub-sections (4) (a), (5) and (6) are in the following terms : "(4) In examining each claim the Special Judge shall have and exercise all the powers of the Court in which a suit for the recovery of money due would lie and shall decide the questions in issue on the same principles as those on which such Court would decide them, subject to the following provisions namely : (a) the amount of interest held to be due on the date of application shall not exceed that portion of the principal which may still be found to be due on the date of application. (5) For the purpose of ascertaining the principal under cl. (a) of sub-s. (4) the Special Judge shall treat as principal any accumulated interest which has been converted into principal at any statement or settlement of account, or by any contract made in the course of the transaction before 31 December 1916. (6) For the purpose of ascertaining the principal under cl. (a) of sub-s. (4) the Special Judge shall not treat as principal any accumulated interest which has been converted into principal at any statement or settlement of accounts or by any contract made in the course of the transaction after 31 December 1916."

(3.) The effect of the Act seems to be that the Special Judge has to ascertain the principal sum due at the date of the application and, in so doing, disallow all interest capitalised, at any rate, after 31 December 1916. Once the principal sum has been so ascertained, it follows that the balance of the amount due, so far as the whole debt consists of capital and interest, and excluding other sums which may be due, e.g., for costs, charges and expenses, is attributable to interest, of which the amount recoverable is limited to a sum equal to the principal. On 30 October 1936, application under the Act was duly made and it is not contended that such application was out of time. The Special Judge determined the application on 26 May 1938. He held that of the amount secured by the mortgage of 1939, the principal sum comprised in the mortgage of 1915 represented principal and the balance interest. He then apportioned the principal sum between the present appellant and his brother in the proportions in which they had divided the liability under the mortgage of 1915 between them and on that basis he fixed the principal due by the appellant at Rs. 3,45,291-8-9, and held that the appellant was liable for payment of that sum for principal and a further sum of the same amount for interest. He also allowed certain sums for costs and fixed the total amount for which the appellant was liable at Rs. 7,02,140-8-6. On 29 September 1938, the appellant presented a memorandum of appeal to the Chief Court of Oudh against this decision but, before the appeal came on for hearing, the Act of 1939 was passed on 30 September 1939. That Act provided, in S. 14, that in S. 14 of the 1934 Act, for the words and figures "before December 31st, 1916" in sub-s. (5) the words and figures "on or before December 31st, 1916" should be substituted, and an explanation was added to sub-s. (5) in these terms : "Interest which on or before 31 December 1916, became part of the principal under the express terms of the original contract shall, for the purpose of this section, be deemed to be principal." By S. 22 a new section, No. 20A, was added after S. 20 of the 1934 Act which so far as material provided, that notwithstanding anything in the 1934 Act, if in the determination of any claim under the provisions of S. 14 any interest had not been treated as principal solely on the ground that it was converted into principal on 31 December 1916, or on the ground that it was converted into principal on or before 31 December 1916, in accordance with an express term in the original contract the amount due under such claim should be re-determined in accordance with the provisions of the Act. The reason for the insertion of the explanation to S. 14, sub-s. (5) of the 193 Act would seem to have been that the Chief Court of Oudh, in 14 Luck. 4301had decided that the contract referred to in sub-s. (5) was a contract entered into after the original mortgage and did not include a provision for converting interest into principal contained in the original mortgage. This case will be considered later in this judgment.