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PETITIONER: CHERUVU NAGESWARASWAMI

       Vs.

RESPONDENT: RAJAH VADREVU VISWASUNDARA RAOAND OTHERS

DATE OF JUDGMENT: 18/05/1953

BENCH: MUKHERJEA, B.K. BENCH: MUKHERJEA, B.K. MAHAJAN, MEHR CHAND HASAN, GHULAM BHAGWATI, NATWARLAL H.

CITATION:  1953 AIR  370            1953 SCR  894

ACT: Hindu  law-Debts-Father’s power to alienate  sons’  interest for  antecedent  debts-Whether  ’property’  and  passes   to Receiver  on insolvency of father-Sale by Receiver,  whether vests sons’ interest in purchaser-Provincial Insolvency Act, 1920,   as   amended   in   1948,   s.    28A--Retrospective operation--Madras  Agriculturists’ Relief Act, 1938, ss.  7, 8-Purchaser of equity of redemption--Right to claim relief.

HEADNOTE: Under the provisions of s. 28A of the Provincial  Insolvency Act,   1920,  as  amended  by  the   Provincial   Insolvency (Amendment)  Act  of  1948, which has  been  expressly  made retrospective,   when  a  Hindu  father  governed   by   the Mitakshara law is adjudged a bankrupt, his power to alienate the interest of his sons in the joint family properties  for the satisfaction of his antecedent debts not contracted  for illegal  or immoral purposes, passes to the Receiver as  his "property" within the meaning of the Act. Consequently,  where  a Hindu father who has  mortgaged  the joint  family property for an antecedent debt which  is  not illegal or immoral becomes insolvent and the receiver  sells the property, the interest of his sons in the property  also vests  in  the purchaser, even in the case of  a  sale  held before  the Amendment Act of 1948 came into force,  and  the sons cannot redeem the property. Sat  Narain  v. Sri Kishen (63 I.A. 384), Rama  Sastrulu  v. Balakrishna Rao (I.  L. R. 1943 --Mad. 83) and Viswanath  v. Official Receiver (I.L.R. 16 Pat. 60) referred to. Though the liability of a person who has purchased an equity of  redemption after 22nd March, 1938, to pay  the  mortgage debt  arises only on the date of his purchase, if  the  debt itself  existed  on  the 22nd March, 1938,  and  if  it  was payable by an agriculturist on that date, the purchaser  can claim  the  benefits  conferred  by  s.  7  of  the   Madras Agricultural  Relief  Act,  1938,  if  he  himself  was   an agriculturist on the date of his application. Periannia v. Sellappa (I.L.R. 1939      218) referred to.

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JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 76 of 1950. Appeal  from  the Judgment and Decree of the High  Court  of Madras dated 18th April 1945, in 895 Appeals Nos. 56 and 192 of 1941 reversing in part the decree of  the  Court of the Subordinate Judge of  Masulipatani  in Original Suit No. 29 of 1937. B.Somayya   (C.   Mallikarjuna  Row,  with  him)   for   the appellant. K.Rajah   Aiyar  (R.   Ganapathy  Aiyar-,  with   him)   for Respondent No. 1. Respondent No. 10 appeared in person. 1953.  May 18.  The Judgment of the Court was delivered by MUKHERJEA J.-The appellant before us is the sixth  defendant in  a  suit, commenced by the  plaintiff-respondent  in  the court  of  the  Subordinate  Judge  at  Masulipatam   (being Original  Suit No. 29 of 1937) for recovery of a sum of  Rs. 99,653  annas odd by enforcement of a simple mortgage  bond. The mortgage bond is dated 28th September, 1930, and it  was executed  by defendant No. 1 for himself and as guardian  of his  two minor sons--defendants 2 and 3-all of whom  consti- tuted  together  a  joint Hindu family at  that  time.   The plaintiff   mortgagee  happens  to  be  the  son-in-law   of defendant  No.  1 and at the time of the  execution  of  the mortgage the first defendant was indebted to a large  number of  persons including the mortgagee himself, and being  hard pressed by his creditors requested the plaintiff to lend him a sum of Rs. 1,25,000 on the hypothecation of the properties in  suit,  to enable him to tide over his  difficulties  and discharge  his  debts.   The  total  consideration  of   Rs. 1,25,000  as stated in the deed is made up of the  following items :- (1)Rs. 13,065, which was the amount due on a promissory note executed  in favour of the plaintiff by the first  defendant on the 17th January, 1928. (2)Rs.  13,285 due under another promissory note dated  18th August,  1930  executed by defendant No.1 in favour  of  the wife of the plaintiff and later on transferred by her to the plaintiff on 28th September, 30. (3)Rs.  25,000 paid by the plaintiff by endorsing in  favour of defendant No. 1 a cheque for that amount 896 drawn  in  his  name  by  the  Co-operative  Central   Bank, Ramchandrapuram on the Central Urban Bank, Madras. (4)  Rs. 937-8-0, the amount paid in cash by plain- tiff to   defendant No.1 for purchasing stamps for the mortgage document. (5)  Rs. 72,712-8-0, the amount of future advances which the plaintiff  promised to make from time to time  to  defendant No.1 according to his convenience. The  money lent was to carry interest at 7 1/2 % simple  per annum and the due date of payment of the principal money was 30th September, 1933.  The interest would, however, have  to be  paid  annually on the 30th of September every  year,  in default of which the whole of the principal and interest  in arrears would become repayable immediately with interest  at 9%  compound per annum with yearly rests.  It was  expressly stated in the mortgage deed that if the mortgagee was unable to advance the entire amount of Rs. 1,25,000, the terms  set out  above would apply to the amount actually advanced.   It appears that after the execution of the mortgage bond a  sum of  Rs.  3,000 only was paid by the mortgagee  to  defendant No.1  on  5th of November, 1930.  In the plaint,  which  was

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filed  by  the plaintiff on the 15th  September,  1937,  the total  claim was laid at Rs. 99,653 annas odd, out of  which Rs.  55,287  annas odd constituted the  principal  money  as stated above and the rest was claimed as interest calculated at the rate of 9% per annum compound with yearly rests. Besides the original mortgagors, who were defendants Nos.  1 to  3 in the suit, there were three other persons  impleaded as parties defendants.  Defendant No. 4 was the Receiver  in insolvency in whom the entire estate of the defendant No.  1 vested  by  reason of his being adjudged a  bankrupt  by  an order  of  the  District  Judge of  Kistna  dated  the  18th January,  1932  in  Insolvency Proceeding No.  20  of  1931, started  at  the instance of another creditor of  the  first defendant.   Defendant No. 5 was a lessee in respect of  the mortgaged properties under defendant No. 4, while the  sixth defendant was the purchaser of all the mortgaged 897 properties  from the Receiver in insolvency.  The  Receiver, it seems, had put up all the suit properties to sale subject to  the mortgage on 19th April, 1937, and they were  knocked down  to  defendant  No. 6 for the price of  Rs.  1,340.   A registered  deed I of sale was executed by the  Receiver  in favour of the purchaser on 20th January, 1939. The  defendants  1 to 3 did neither appear nor  contest  the suit.  Defendant No. 4 appeared in person but disclaimed any interest  in  the  suit properties.   The  defendant  No.  5 contended that he was a lessee under defendant No. 4 for one year only and was not a necessary party to the suit at  all. The  suit  was  really contested by  defendant  No.  6,  the purchaser  at  the Receiver’s sale.  The  defence  taken  by defendant  No. 6 in his written statement was  substantially of a two-fold character.  It was pleaded in the first  place that the bond in suit was a collusive document not supported by any consideration and was executed by defendant No. 1  in favour  of  his own son-in-law, with a view  to  shield  his properties  from  the  reach of his  creditors.   The  other contention  put  forward was that the interest  claimed  was penal  and  usurious.   After  the  passing  of  the  Madras Agriculturists’  Relief Act in March, 1938,  this  defendant filed  an additional written statement, with the  permission of  the  court,  in  which he raised the  plea  that  as  an agriculturist  he  was entitled to the reliefs  provided  in that Act and that the mortgage debt should be scaled down in accordance with the provisions of the same. The  trial Judge by his judgment dated the 29th July,  1940, decreed  the  suit in part.  It was held that  the  mortgage bond  was  not  a  collusive  document  executed  with   the intention  of defrauding the creditors of the mortgagor;  it was   a   genuine   transaction   and   was   supported   by consideration.   On  the other point, the  court  held  that defendant  No.  6 was an agriculturist and was  entitled  to claim  the  reliefs  under Madras Act  IV  of  1938.   After deducting  all outstanding interest which  stood  discharged under section 8(1) of the 898 Agriculturists  Relief Act, the principal money due  to  the creditor on that date was found by the trial court to be Rs. 42,870 annas odd.  This figure was arrived at by taking only the original amounts actually advanced on the two promissory notes mentioned above and further, deducting from them,  the payments made by the debtor towards the satisfaction of  the principals  in each.  Thus a preliminary decree was made  in favour  of the plaintiff entitling him to recover a  sum  of Rs.  42,870-4-0  together with interest at 6 1/4  per  annum from  1st  October, 1937, to 1st November,  1940,  the  date

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fixed for payment under the preliminary decree.  In default, the whole amount was to carry interest at 6% per annum.   It may be mentioned here that the Subordinate Judge in deciding issue  No. 3 held expressly that the provision  relating  to payment of compound interest at an enhanced rate in  default of  payment of the stipulated interest on the due dates  was in  the nature of a penalty and should be relieved  against; but  as the court scaled down the interest under Madras  Act IV of 1938, it became unnecessary to consider in what manner this relief should be granted under section 74 of the Indian Contract Act. Against  this decision, two appeals were taken to  the  High Court  of  Madras,  one by the plaintiff and  the  other  by defendant  No. 6. The plaintiff in his appeal (being  Appeal No.  56 of 1941) assailed that part of the judgment  of  the Subordinate  Judge  which gave the defendant  No.  6  relief under  the  Madras  Agriculturists’ Relief  Act;  while  the appeal of the sixth defendant (being Appeal No. 192 of 1941) attacked  the very foundation of the mortgage decree on  the ground  that the mortgage being a collusive  and  fraudulent transaction, the plaintiffs suit should have been  dismissed in toto.  The defendants 2 and 3, although they remained  ex parts  during the trial in the first court, filed, in  forma pauperig,  a memorandum of cross-objection  challenging  the decree of the Subordinate Judge on the ground that as  their interest  in  the mortgaged properties did not pass  to  the defendant  No,  6 by virtue of the  Receiver’s  sale,  their right of 899 redemption  remained intact and ought to have been  declared by the trial Judge. Both these appeals as well as the cross-objection were heard together by a Division Bench of the High Court and they were disposed  of by one and the same judgment dated the 18th  of April, 1945. The High Court affirmed the finding of the trial Judge  that the  bond  in  suit was supported by  consideration  to  the extent  of Rs. 55,287-8-0 as alleged in the plaint and  that it  was  a  valid and bona fide  transaction.   The  learned Judges  held,  differing  from the  trial  court,  that  the defendant  No. 6 was not entitled to claim any relief  under the provisions of the Madras Agriculturists’ Relief Act, and that in any event the court below was not right in  reducing the amount of the principal money from Rs. 55,287-8-0 to Rs. 42,870,  there  being no renewal of a prior debt so  far  as defendant No. 6 was concerned.  The court agreed in  holding that the provision relating to payment of enhanced  interest in  case  of default amounted to a penalty and  reduced  the rate  of  interest from 9% compound to 71  %  compound  with yearly  rests.   Lastly, the High Court allowed  the  cross- objection of defendants 2 and 3, being of opinion that their interest  in the mortgaged properties could not vest in  the Receiver  on  the insolvency of their father  and  that  the defendant No. 6 could not acquire the same by virtue of  his purchase  from  the Receiver.  The defendants Nos. 2  and  3 were,  therefore, allowed the right to redeem the  mortgaged properties  along with defendant No. 6. The result was  that the plaintiff was given a decree for a sum of Rs. 55,287-8-0 with interest at 7 1/2 compound with yearly rests up to  the date  of redemption and subsequent interest was  allowed  at the  rate  of 6% per annum.  Interest was to  be  calculated from  28th September, 1930, on Rs. 52,287-8-0 and. from  5th November,  1930, on the amount of Rs. 3,000.   Against  this decree, the defendant No. 6 obtained leave to appeal to  the Privy   Council  and  because  of  the  abolition   of   the

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jurisdiction  of  the  Privy Council, the  appeal  has  come before us. 900 Mr. Somayya, who appeared in support of the appeal, did  not press  before  us  the contention raised on  behalf  Of  his client  in  the  courts  below  that  the  mortgage  was   a fraudulent  transaction  or  was void  for  want  of  consi- deration.  He assailed the propriety of the judgment of  the High  Court  substantially  on  three  points.   His   first contention is, that the decision of the High Court  allowing a right of redemption to defendants 2 and 3 cannot stand  in view   of  the  amendment  introduced  by   the   Provincial Insolvency  Amendment  Act, 1948, which has  been  expressly made  retrospective.  The second point taken by the  learned counsel  is that the defendant No. 6 should have been  given relief  under the Madras Agriculturists’ Relief Act and  the debt  should  have been scaled down in accordance  with  the provisions thereof.  It is said that the defendant No. 6 was an agriculturist himself and even if he was not, the  relief under  Madras Act IV of 1938 was still available to  him  by reason of the original mortgagors being agriculturists.  The third  and the last point urged is that in any event  having regard to the finding arrived at by the High Court that  the stipulation to pay compound interest at an enhanced rate was a penalty, adequate relief should have been granted  against it and no compound interest should have been allowed at all. The  first  point  raised by the  learned  counsel,  in  our opinion,  is well-founded and must succeed.  There was  some difference of judicial opinion as to whether the powers of a father under the Mitakshara law to alienate the joint family property including the interest of his sons in the same  for discharge  of an antecedent debt not contracted for  illegal or   immoral   purposes  vests  in  the  Receiver   on   the adjudication  of  the  father as an  insolvent.   Under  the Presidency Towns Insolvency Act, this power was held to vest in the Official Assignee under section 52(2) of the  Act(1). As  regards cases governed by Provincial Insolvency Act,  it was  held by a Full Bench of the Madras High Court that  the father’s power to dispose of his son’s interest in the joint family property for satisfaction of his untainted (1)  Sat Narain v. Sri Kishen, (1936) 63 I.A. 384. 901 debts  was not "property" within the meaning of  section  28 (2)  (d)  of  the Provincial Insolvency  Act(1)  ;  while  a contrary  view was taken by a Full Bench of the  Patna  High Court  (2)  . The conflict has now been set at rest  by  the enactment  of  section  28A  in  the  Provincial  Insolvency Amendment  Act  of 1948 which came into force  on  the  12th April, 1948.  The new Section reads as follows :- "  The  property of the insolvent shall comprise  and  shall always  be  deemed to have comprised also  the  capacity  to exercise  and  to take proceedings for exercising  all  such powers  in or over or in respect of property as  might  have been  exercised by the insolvent for his own benefit at  the commencement of his insolvency or before his discharge." The language of the section indicates that its operation has been  expressly made retrospective.  The result,  therefore, is  that  the power of the defendant No. 1 to  alienate  the interest  of  his  sons,  the defendants 2  and  3,  in  the mortgaged  properties  for satisfaction  of  his  antecedent debts,  did  pass to the Receiver as "Property"  within  the meaning of the Provincial Insolvency Act and consequently OD a  sale by the Receiver the interest of defendants 2  and  3 did  vest in the sixth defendant, and he alone must be  held competent to exercise the right of redemption.

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The  second point urged by Mr. Soinayya raises the  question as  to  whether the appellant could claim relief  under  the Madras  Agriculturists’ Relief Act.  The High Court  decided this point against the appellant firstly on the ground  that the  appellant  was  not  a  debtor  at  the  date  of   the commencement  of the Act, he having acquired no interest  in the  equity  of redemption at that time.  The  other  reason given  is that the defendant No. 6 was not an  agriculturist within  the  meaning of the Agriculturists’ Relief  Act  and although  he was possessed of agricultural lands  and  hence prima facie came within the definition of an " agriculturist " as given in section 2 (ii) of (1)  Ramasastralu v. Balakrishna Rao I.L.R. [1943] Mad. 83. (2)  Viswanath  v. Official Receiver, I.L.R. (1936) 16  Pat, 60 (F.B.). 902 the  Act,  he  was  excluded  from  the  definition  by  the operation of proviso (D) attached to the sub-section. So  far as the first ground is concerned, section 7  of  the Agriculturists’  Relief Act expressly lays down that  "  all debts  payable  by an agriculturist at the  commencement  of this  Act,  shall  be scaled down  in  accordance  with  the provisions of this chapter".  The essential pre-requisite to the application of the provisions of the chapter,  therefore is  the existence of a debt payable by an  agriculturist  on the date when the Act commenced, that is to say, on the 22nd March,  1938.   The learned Judges of the  High  Court  were certainly right in saying that the sixth defendant was not a debtor  on that date, as he did not become the owner of  the equity of redemptin till the 20th of January, 1939, when the deed  of sale was executed in his favour by the Receiver  in insolvency.   But  this  by  itself  is  not  sufficient  to disentitle   the   appellant  to  the  privileges   of   the Agriculturists’  Relief Act.  It is not necessary  that  the applicant  for relief himself should be liable for the  debt on  the  date that the Act came into-force.   The  right  to claim  relief  as  is well settled by  decisions(1)  of  the Madras  High  Court  is  not  confined  to  the  person  who originally  contracted  the debt, but is  available  to  his legal  representatives  and  assigns  as  well;  nor  is  it necessary that the applicant should be personally liable for the  debt.   The liability of a purchaser of the  equity  of redemption  to pay the mortgage debt undoubtedly  arises  on the date of his purchase; but the debt itself which has  its origin  in  the  mortgage bond did  exist  from  before  his purchase,  and if it was payable by an agriculturist at  the relevant  date,  the  purchaser could  certainly  claim  the privileges of the Act if he himself was an agriculturist  at the  date  of  his  application.   The  material   question, therefore,  is whether the mortgage debt was payable  by  an agriculturist  on  22nd March, 1938 ? The  appellant  argues that  it  was  payable  by  the  mortgagors  and  they  were certainly  agriculturists.   We do not think that  there  is warrant for any such assumption on (1)  Vide Periannia v. Sellappa, I.L.R. [1939] Mad. 218. 903 the  materials as they exist on the record.  The only  issue before  the trial Judge was, as to whether defendant  No.  6 was an agriculturist.  There was neither any question raised nor any evidence adduced as to whether defendants Nos.  I to 3 were agriculturists as well.  In fact, this aspect of  the case was not adverted to by the trial Judge at all.   Before the  High Court it was argued on behalf of defendant  No.  6 that even if he was not an agriculturist himself, yet if the defendants 2 and 3 were given relief as agriculturists, that

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would  enure  for  his benefit as well  and  accordingly  he invited the court to go into the question and hold that  the original  mortgagors were agriculturists.  This the  learned Judges refused to do and dismissed this part of the claim of defendant No. 6 with these remarks: "In the present case, the mortgagors have not claimed such a benefit,  nor  have they adduced any evidence to  show  that they are agriculturists.  We therefore cannot accede to  the request  of  the  sixth  defendant that  the  right  of  the mortgagors to relief should be investigated merely with  the object   of  giving  an  accidental  relief  to   the   non- agriculturist purchaser." As the point was not investigated at all, it is not possible for us to hold that the debt was payable by an agriculturist on  the  relevant  date.   It  may  be  that  the  mortgaged properties  were  agricultural  lands but it  is  not  known whether the mortgagors did possess other estates which might bring  them  within  the  purview of  any  of  the  provisos attached  to  the definition.  In these  circumstances,  the appellant  must be deemed to have failed to show that  there was in existence a debt payable by an agriculturist on  22nd March, 1938. The High Court has held further that the defendant No. 6 was not an agriculturist because he was the purchaser of certain villages  at  a  court sale in respect  of  which  Peishkush exceeding  Rs. 500 was payable.  Consequently, he  became  " land-holder of an estate " under the Madras Estates Land Act and  could not claim to be an agriculturist as laid down  in the proviso (D) to section 2 (ii) of the Act.  Mr. Somayya 904 lays stress upon the fact that this purchase on the part  of his client was merely as a benamidar for defendant No. 5  as has been held by both the courts below and consequently  the proviso  did  not affect him at all.  This  is  a  debatable point  upon  which the judicial opinion of the  Madras  High Court  itself  does  not  seem  to  be  quite  uniform.    A distinction  can certainly be drawn between the rights of  a person in his own individual or personal capacity and  those which he exercises on behalf of another.  On the other hand, if we look to the definition of " land-holder " as given  in section  3  (5) of the Madras Estates Land Act,  it  may  be argued  that  a benamidar of an estate, who is  entitled  to collect  rents  and  is at least the titular  owner  of  the estate could come within the description.  Having regard  to the  view taken by us that section 7 of the  Agriculturists’ Relief  Act  is not applicable on the facts of  the  present case,  this question does not really become material and  it is  not necessary for us to express any final  opinion  upon it.   For  the  identical reason section 8 (1)  of  the  Act cannot  also be invoked in favour of the appellant.  It  may further  be  mentioned  that Mr. Somayya in  course  of  his arguments  made it plain that he would not press for  relief under the Agriculturists’ Relief Act if the high rate of in- terest allowed by the High Court was substantially reduced. This  takes  us  to the third point and we  think  that  the stipulation  as to payment of compound interest in  case  of default,  being  held  to be a penalty by  both  the  courts below,  the High Court should not have allowed  interest  at the rate of 71 % compound with yearly rests, The High  Court seems  to have been misled by a statement occurring  in  the judgment  of  the  trial Judge that  the  original  rate  of interest was 7 1/2% compound with yearly rests.  This is not true and as a matter of fact, the original agreement was  to pay interest at 7 1/2 % simple.  We consider it proper  that the  mortgage  money payable to the plaintiff  should  carry

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interest  at the rate of 7 1/2% simple up to the  expiry  of the  period  of redemption which we fix at six  months  from this date, 905 The  result, therefore, is that we allow the appeal in  part and  modify the judgment of the High Court.   A  preliminary decree should be drawn up in favour of the plaintiff against defendant  No.  6 alone for a sum of Rs.  55,287  annas  odd which  will  carry interest at 7 1/2 %  simple  per  annum.. Interest  will be calculated on Rs. 52,287 on and  from  the date  of  the mortgage, while on the balance  of  Rs.  3,000 interest will run from 5th November, 1930.  We make no order as  to  costs  of  this court or of  the  High  Court.   The plaintiff will have his costs of the trial court. Appeal allowed in part. Agent for the appellant: M. S. K. Aiyangar. Agent for respondent No. 1 : Ganpat Rai.