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PETITIONER: BHRIGUNANDAN PRASAD AND ORS.

       Vs.

RESPONDENT: THE APPELLATE OFFICER & ORS.

DATE OF JUDGMENT: 25/03/1966

BENCH: WANCHOO, K.N. BENCH: 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

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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  al- ready 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

JUDGMENT: 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  orignal 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

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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

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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 mort- gage 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  thereunder 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.

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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)  to- wards  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  non- obstante 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

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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  what- ever 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 prin- cipal  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  mort- gage 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

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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.                              63