http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: SARDAR SAMSHER SINGH

       Vs.

RESPONDENT: RAJA SARDAR NARAIN AND OTHERS.

DATE OF JUDGMENT: 05/08/1960

BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS DAS, S.K. HIDAYATULLAH, M. SHAH, J.C. AYYANGAR, N. RAJAGOPALA

CITATION:  1960 AIR 1249

ACT: Debt     Relief--Decree    on     mortgage--Reduction     of interest--Statute prohibiting allowing of interest exceeding principal  sum  due--Application  of--Relevant  date--U.  P. Encumbered  Estates  Act,  1934  (U.  P.KXV  of  1934),   s. 14(4)(a).

HEADNOTE: N borrowed rupees one lakh from D on mortgage of a house and Zamindari  interest on March 1, 1924.  Interest was  8%  per annum  compoundable  with six monthly rests.   In  1932  the mortgagee  filed  a suit on the mortgage and  a  decree  was passed  for the recovery of Rs. 1,83,781/5/9  principal  and interest  upto  the  date of the suit and  Rs.  49,280/  2/6 interest  from  date  of the suit upto the  date  fixed  for payment, with future interest at 6% per annum simple on  the principal  sum.  On the failure of the mortgagor to  pay  by the date fixed a final decree was passed on May 9, 1935  for sale  of  the  property  for  recovery  of  a  sum  of   Rs. 2,37,503/5/6  which had become due.  On October 26, 1936,  N made  an  application  under s. 4 of the  U.  P.  Encumbered Estates Act, 1934, requesting that the-provisions of the Act be  applied  to him.  Section 14(4)(a) of the  Act  provided that " 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  the application  ". N contended that in view of S.  14(4)(a),  D was not entitled to recover any sum as interest in excess of the  principal sum of rupees one lakh.  D contended that  it was  not necessary to reopen the decree as the principle  of s. 14(4)(a) had not been violated in passing the decree. Held, that the proper decree that should have been passed on the  application was for rupees two lakhs for the  principal and  interest  plus  costs and interest  pendente  lite  and future interest at 4% per annum.  The words " on the date of the  application  "  in  s. 14(4)(a) of  the  Act  had  been deliberately  used to benefit the applicant by reducing  the interest  to the amount of the principal found still due  on the date of the application, whatever amount of interest may

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

be  due under the contract.  The fact that there had been  a decree did not make any difference in giving the benefit  of the section to the applicant. Pandit  Ramsagar Prasad v. Mst.  Shayama, A.I.R.  1939  Oudh 75, disapproved. Rukun-uddin  v.  Lachhmi  Narain,  I.L.R.  1945  All.   307, referred to. 119

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 216 of 1954. Appeal from the judgment and decree dated September 26,1946, of  the  former Chief Court of Avadh at  Lucknow,  in  First Appeal No. 7 of 1940. Naunit Lal, for the appellant. S.   N.  Andley, Rameshwar Nath, J. B. Dadachanji and P.  L. Vohra, for respondent No. 1. 1960.  August 5. The Judgment of the Court was delivered by DAS   GUPTA   J.-This   appeal  raises   the   question   of interpretation  of s. 15 of the United Provinces  Encumbered Estates  Act, 1934.  On March 1, 1924, Sardar  Nihal  Singh, the  predecessor of the appellant before us, borrowed a  sum of rupees one lakh from Raja Durga Narain Singh, predecessor of  the respondents, on mortgage of a house  in  Butlergunj, Lucknow and also the entire Zamindari interest in a  village Parsera.   Interest was 8 per cent. per annum compound  with six monthly rests.  In 1932 Raja Durga Narain Singh  brought a  suit  for  recovery of Rs.  1,83,791-5-9  on  account  of principal  and interest due on the mortgage, by sale of  the mortgaged  property.   In this suit the  Subordinate  Judge, Lucknow, made a preliminary decree declaring the amount  due to the plaintiff on the mortgage calculated up to March  29, 1935, to be Rs. 1,83,791-5-9 up to the date of the suit, Rs. 49,280-2-6  as  the  amount  due  on  account  of   interest thereupon from March 19, 1932, the date of the suit to March 29, 1935, the date fixed for payment.  A sum of Rs. 4,314-2- 9  was awarded as the cost of the suit.  The  defendant  was ordered  to pay this total sum of Rs.  2,37,385-11-0  before the  29th day of March, 1935, with future interest at 6  per cent.  per annum simple on the principal sum of  rupees  one lakh.   The  amount not having been paid on that  date,  the Court on an application made by the mortgagee-decree. holder made  a final decree on May 9, 1935, directing sale of  the- property  for recovery of the sum of Rs.  2,37,503-5-6  with future interest as in the preliminary decree,(this sum being the total of Rs. 2,37,305-11-0 120 of  the preliminary decree, Rs. 116-10-1 the  interest  from March 30, 1935, and rupee one the cost of the final decree). An  application  for revision under s. 115 of  the  Code  of Civil Procedure in connection with this decree was  rejected by  the Chief Court of Oudh on April 20,1937.  Before  this, on October 26, 1936, an application had been made by  Sardar Nihal Singh under s. 4 of the U. P. Encumbered Estates  Act, requesting  the provisions of the Act to be applied to  him. After  this  application came before the  Special  Judge  in accordance  with  the  provisions of s.  6,  the  mortgagee- decreeholder Raja Durga Narain Singh filed a written  state- ment of his claim on September 30,1937, and stated that  the amount  due  to  him  on the basis of  his  decree  was  Rs. 2,51,904-8-6 including Rs. 14,300 as interest subsequent  to the  final decree till September 30, 1937, and a sum of  Rs. 51-3-0 the decree for costs in his favour by the Oudh  Chief

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

Court   when  rejecting  the  mortgagor’s  application   for revision.   He prayed that a decree for Rs. 2,51,904-8-6  be passed  in  his favour against the  applicant  Sardar  Nihal Singh and his property.  The applicant contested this  claim pleading  that  the  principal  amount  borrowed  from   the claimant being rupees one lakh the claimant was not entitled to  recover any sum as interest thereupon in excess  of  the principal amount under s. 14 of the Encumbered Estates  Act. This  plea was rejected by the Special Judge who  held  that the claimant was entitled to Rs. 2,37,503-5-6 for which  the final decree was passed, and also Rs. 51-3-0 as costs in the matter  of revision application and further to 6  per  cent. per annum interest on rupees one lakh from May 29, 1935, the date  of the final decree till the date of  the  application under  the Encumbered Estates Act, i.e., October  26,  1936. Accordingly  he gave the claimant a simple money decree  for Rs.   2,46,338-8-6  with  proportionate  costs  and   future interest  at the rate of 4 per cent. per annum  simple  from the date of application till realisation. On appeal, the Cheief Court of Oudh rejected the appellant’s contention that the Special Judge was bound by s. 14 of  the Act to limit the decree to a sum 121 of  rupees  two lakhs only and held that in so  far  as  the preliminary decree found Rs. 1,83,791-5-9 as the amount  due on  the mortgage on March 29, 1932, it was not  inconsistent with s. 14 of the Encumbered Estates Act, and so the Special Judge was bound to accept this finding under s. 15.  It held however  that  in  so far as this  decree  allowed  interest pendente  lite on the above amount from March 19,  1932,  to March  29, 1935, at 8% per annum, it was  inconsistent  with sub-s.  7 of s. 14.  The Chief Court accordingly  held  that this  interest  pendente  lite must be  reduced  to  4  1/4% simple.   After saying that a sum of Rs. 4,314-2-9 would  be added  on  account of costs, rupee one should  be  added  on account  of the costs of the final decree and Rs. 51-3-0  as costs  of  a revision application, the Court held  that  the principal  amount of Rs. 1,00,000 shall carry interest  from March  29, 1935, till the date of application under s. 4  of the Encumbered Estates Act, viz., October 26, 1936, and that the  aggregate  of these figures shall carry  interest  from October 27, 1936, till realisation at 4 per cent. per annum. It  directed a decree for the sum thus found to  be  substi- tuted  for  that  passed  by  the  Subordinate  Judge.    An application for leave to appeal to the Privy Council against this decree was made on January 13, 1947.  This  application was  disposed  of  on  April 14,  1953.   Holding  that  the valuation of the suit was well over Rs. 20,000 and the value of  the appeal to the Supreme Court was Rs.  41,971-2-9  the Chief Court gave, in view of the modification made by it  in the  lower  court’s  decree, a  certificate  that  the  case fulfils  the  requirements of s. 110 of the  Code  of  Civil Procedure  and that the applicant had a right to  appeal  to the Supreme Court.  On the strength of that certificate  the present appeal was filed When  the appeal came up for hearing before a Bench of  four judges   of  this  Court  Mr.  Andley,  on  behalf  of   the respondents  stated  that  in this case  he  was  raising  a constitutional point.  Thereupon the Court directed that the matter be posted before the Constitution Bench.  That is how the appeal has come up for hearing and final disposal before us. 16 122 Mr.  Andley stated before us that the  Constitutional  point

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

which he had wanted to raise was whether the judgment of the Chief  Court was one of affirmance under Art. 133(1) of  the Constitution but that be did  not wish to pursue this point. As  Mr. Andley does not press his constitutional  point,  no further discussion of this is necessary. The real controversy in the case between the parties  is, as already indicated, as regards the interpretation of s. 15 of the  Encumbered Estates Act.  The relevant portion of s.  15 is in these words:- "In determining the amount due on the basis of a loan  which has  been  the subject of a decree the Special  Judge  shall accept  the  findings of the Court which passed  the  decree except  in  so  far  as  they  are  inconsistent  with   the provisions of s. 14." A later amendment by which after the words and figures "  s. 14  ",  the  words " or s. 4 of the U.  P.  Zamindars  Debts Reduction  Act,  1952 " were added is not relevant  for  our purpose.  Section 14 runs as follows: " 14. (1) The Special  Judge shall, by an order in  writing, fix  a date for enquiring into the claims made in  pursuance of  the  notice published in accordance with s. 9  and  give notice of such date to all the claimants and the person  who made the application under s. 4. (2)  The  Special Judge shall examine each claim  and  after hearing such parties as desired to be heard and  considering the  evidence, if any, produced by them shall determine  the amount, if any, due from the landlord to the claimant on the date of the application under s. 4. (3)  All  evidence recorded in any suit or proceeding  which is stayed under sub-section (1) of section 7 may be taken by the Special Judge as evidence recorded before himself. (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 the money due would lie and shall decide the questions in issue on the principles as those on which  such court   would   decide  them,  subject  to   the   following provisions, namely:- 123 (a)  the  amount of interest held to be due on the  date  of the  application  shall  not  exceed  that  portion  of  the principal which may still be found to be due on the date of the application: (b)  the  provisions of the United Provinces  Agriculturists Relief Act, 1934, shall not be applicable to proceedings tinder this Act. (5)  For  the  purpose of ascertaining the  principal  under clause  (a) of subsection (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 on or before December 31, 1916. Explanation:-Interest which on or before December 31,  1916, became  part  of the principal under the  express  terms  of original  contract shall, for the purposes of this  section, be deemed to be principal. (6)  For  the purposes of ascertaining the  principal  under clause  (a) of sub-section (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 transactions after December 31, 1916. (7)  If  the Special Judge finds that any amount is  due  to the  claimant he shall pass a simple money decree  for  such amount,  together  with  any costs which  he  may  allow  in respect  of proceedings in his court and of  proceedings  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

any  civil  court stayed under the provisions of  this  Act, together  with pendente lite and future interest at  a  rate not greater than the rate specified in section 27, and if he finds  that no amount is due he may pass a decree for  costs in  favour of the landlord.  Such decree shall be deemed  to be  a decree of a civil court of competent jurisdiction  but no  decree against the landlord shall be  executable  within Uttar Pradesh except under the provisions of the Act: Provided that no pendente lite interest shall be allowed  in the case of any debt where the creditor was in possession of any  portion  of the debtor’s property in lieu  of  interest payable on such debt." 124 Obviously there can be no question of any inconsistency in a finding of a court which has passed a decree on the basis of a loan, with the provisions mentioned in sub-ss. 1, 2 & 3 of s.  14; nor is there any question of any inconsistency  with the  provisions  of  sub-section  7  of  s.  14,  as   those provisions apply only after the Special Judge has found  the amount due to the claimant and the question of inconsistency of  any finding in the decree with the provisions of  s.  14 arise under s. 15 at the stage when the amount due is  being determined.   Sub-sections  4,  5 and 6  of  s.  14  however require  careful  consideration of the Special  Judge,  when examining a decree of a Civil Court, to’ find whether any of the  findings  of  the  court  is  inconsistent  with  those provisions.   If  they are inconsistent with  any  of  those provisions  he has to reject the findings to the  extent  of such inconsistency.  Thus, if for example, the provisions of the  Usurious  Loans Act. 1918, would be beneficial  to  the applicant   landlord   and   have  not   been   taken   into consideration  by  the  court which passed  the  decree  the Special Judge will have to give effect to s. 14(4)(b) of the Act to modify the finding of the Court as regards the amount due,  after  applying the provisions of the  Usurious  Loans Act.   On  the other hand, if the provisions of  the  U.  P. Agriculturists  Relief Act, 1934, have been applied  by  the Civil Court, the finding as regards the amount due in so far as the same was based on those provisions cannot, in view of its  inconsistency with sub-s. 4(c) of s. 14 be accepted  by the Civil Court and he will have to modify the same, leaving out  the provisions of the U. P. Agriculturists Relief  Act. Similarly if in arriving at the amount due, the Court  which passed  the decree has acted inconsistently with  sub-ss.  5 and 6 of s. 14, the finding will have to be modified by  the Special Judge by applying the provisions of sub-ss. 5 and 6. So, also if the finding of the Court which passed the decree is " inconsistent with " the provisions of sub-s. 4(a) of s. 14 of the Encumbered Estates Act the finding will have to be rejected in so far as it is inconsistent.  The question that has  arisen  in  this case and may as well  arise  in  other cases, is whether when in ascertaining 125 the  amount due on the basis of a loan, at the date  of  the suit,  the  Court  which passed the  decree  did  not  allow interest  exceeding the portion of the principal  which  was still  due at the date of the suit, the finding  as  regards the amount due is inconsistent with s. 14(4) (a) because the consequence  of  that  finding as regards  the  amount  due, together  with  interest allowed thereupon, is that  on  the date  of the application the amount of interest due  exceeds the portion of the principal remaining unpaid on the date of the application.  On behalf of the decree-holder-claimant it is   contended   that  all  that  is   necessary   to   save inconsistency  with  sub-s. 14(4)(a) is that  the  principle

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

that  the amount of interest shall not exceed the amount  of the  unpaid  principal  has been followed,  in  passing  the decree and the fact that the result of the finding would  be that  on the date of the application u/s. 4 of the  Act  the interest  due  would  exceed the portion  of  the  principal unpaid  on such date is of no consequence.  This  contention cannot in our opinion be accepted. The requirement of sub-s. 4(a) of s. 14 is that " the amount of  interest held to be due on the date of  the  application shall  not  exceed that portion of the principal  which  may still  be found to be due on the date of  the  application." The  words  "  on the date of the application  "  cannot  be ignored.   There can be no doubt that these words "  on  the date of the application " were deliberately used in the sub- section for the purpose of benefiting the landlord applicant to  this extent that whatever interest due on  the  contract may  amount  to,  it will be limited to the  amount  of  the principal  found  still remaining due, on the  date  of  the application.  When the Legislature goes further and provides that  if prior to the application a decree has been made  on the basis of the loan the findings of the Court which passed the decree shall be accepted but forbids such acceptance  if such  finding is inconsistent with the provisions of s.  14, the intention clearly is that the fact that there has been a decree  will not make any difference as regards the duty  of the  Special Judge to give the applicant the benefit of  the provisions of s.    14.  When the Court passed  the  decree, there was 126 no  application  under the Encumbered Estates Act,  and  so, there could be no question of the Court then complying  with the  provisions of s. 14(4)(a).  Even so, when  the  Special Judge  has  to  reject  such  of  the  findings  as  are   " inconsistent  " with s. 14, he must find out the  effect  of the several findings of the court to ascertain whether there is such inconsistency.  Where the consequence of the finding of the court which passed the decree is that the  provisions of s. 14(4)(a) about the amount of interest due on the  date of  the  application not exceeding the unpaid  principal  on that date are contravened, the finding should be held to  be inconsistent  with these provisions.  In saying that  if  in the  decree the court did not allow interest as on the  date of the suit to exceed the principal then remaining due there is  no  inconsistency  with s.  14(4)(a),  the  respondent’s counsel is in effect asking us to read for the words " in so far as they are inconsistent with the provisions of s. 14  " the  words " in so far as they would have been  inconsistent with the provisions of s. 14, if the date of the institution of  the  suit be deemed to be the date  of  the  application under s. 4." For this we cannot find any justification.  Not only  would  this  defeat  the  beneficial  purpose  of  the legislation under s. 14(4)(a); but this will also not be the natural  meaning  of  the  words " in so  far  as  they  are inconsistent with the provisions of s. 14." The Chief Court’s view that the Special Judge has merely  to see  whether  the Civil Court that passed the  decree  could have  passed the decree which it did pass if that court  had had  to apply the provisions of s. 14, treating the date  of the  institution of the suit as the date of the  application cannot therefore be accepted as correct.  The same view  had been  taken  by  the  Chief Court  of  Oudh  in  an  earlier decision, of Pandit Ramsagar Prasad v. Mst.  Shayama (1).  A Full Bench of the Allahabad High Court had in Rukun-uddin v. Lachhmi  Narain  (2)  to consider  the  question  whether  a finding in a decree made by a civil court that the  creditor

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

is entitled to interest only at the rates specified in U. P. Agriculturists Relief Act was inconsistent with the (1) A.I.R. 1939 Oudh 75. (2) I.L.R. [1945] All. 307. 127 provisions of s. 14 of the U. P. Encumbered Estates Act  and was  therefore not binding on the Special Judge  hearing  an application under the U. P. Encumbered.  Estates Act.   They held  that  such a finding must be held to  be  inconsistent with  the  provisions of s. 14 and could  therefore  not  be binding  on the Special Judge.  There can be no doubt  about the  correctness of this view, for, as has been pointed  out above s. 14(4)(c) provides that the provisions of the U.  P. Agriculturists  Relief  Act  shall  not  be  applicable   to proceedings  under the Encumbered Estates Act.  One  of  the learned  judges Mr. Justice Verma referred with approval  in the  course  of his judgment to the view taken  in  Ramsagar Prasad’s  Case (1).  For the reasons mentioned earlier  how- ever  we are of opinion that the view in  Ramsagar  Prasad’s Case  (1) which has been followed by the Chief Court in  the present case is wrong. Our  conclusion therefore is that the Special Judge is  even where there has been a decree by a civil court in respect of a loan bound to follow the provisions of s. 14(4)(a) of  the Act  so that the amount of interest which he can hold to  be due  on  the  date of the application must  not  exceed  the portion of the principal found to be due on the date of  the application.   Accordingly in the present case  the  Special Judge  should have held the amount of interest due  oil  the date  of the application, i.e., October 26, 1936, to  amount to rupees one lakh only, that being the principal which  was still due on that date.  Under the provisions of sub-s. 7 of s.  14 the Special Judge has to "pass a simple money  decree for such amount, together with any costs which he may  allow in respect of proceedings in his court and of proceedings in any  civil  court stayed under the provisions of  this  Act, together  with pendente lite and future interest at  a  rate not  greater  than the rate specified in s. 27." It  was  in view  of this provision that the special Judge and the  High Court  allowed  interest at the rate of 4% per  annum.   The proper decree the Special Judge should have passed therefore was  one for rupees two lakhs for the loan with  permissible interest, plus Rs. 4,314-2-9, Rs. 51-3-0 and rupee (1)  A.I.R. 1939 Oudh 75. 128 one  on  account of costs, that is, for a total sum  of  Rs. 2,04,366-5-9   with   proportionate  costs   with   interest pendente lite and future interest at the rate of 4 per  cent per  annum  simple from the date of the  application,  i.e., October 26, 1936, till realisation. Accordingly,  we  allow  the appeal, set  aside  the  decree passed  by the courts below and order that in place  of  the decree made by the Trial Court be substituted a money decree in the terms as mentioned above. The appellant will get his costs in the appeal.                                           Appeal allowed.