Radha Kissen Chamria And Ors. vs Keshardeo Chamria And Anr.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 24 May, 1957

Coram: Sarkar

In this matter, the Supreme Court of India heard an appeal titled Radha Kissen Chamria and Ors. versus Keshardeo Chamria and Anr., which was decided on 24 May 1957. The judgment was delivered by Justice Sarkar. The central issue before the Court was succinct and concerned solely the question of whether the appellants were entitled to relief under the Bengal Money Lenders Act, specifically the statute identified as Bengal Act 10 of 1940. Section 30 of that Act was reproduced in the judgment and reads: “Notwithstanding anything contained in any law for the time being in force, or in any agreement, (1) no borrower shall be liable to pay after the commencement of this Act— (a) any sum in respect of principal and interest which together with any amount already paid or included in any decree in respect of a loan exceeds twice the principal of the original loan, (b).................................................. (c).................................................. Whether such loan was advanced or such amount was paid or such decree was passed or such interest accrued before or after the commencement of this Act.” The appellants argued that they were borrowers who were being required to pay amounts that went beyond the ceiling fixed by the quoted provision. They asserted that such additional liability could not be imposed upon them. Consequently, the Court was called upon to determine whether the sums that the appellants were being asked to pay fell within the definition of a “loan” as contemplated by the Act and whether the statutory ceiling applied to the amounts in dispute.

The litigation from which this appeal arose began in 1923 and involved a large number of proceedings over many years. For the purpose of resolving the present question, the judgment focused on a few key proceedings. The respondent, Durga Prasad Chamria, had acquired a property situated in Howrah, West Bengal, through a Court sale conducted to enforce a decree. The purchase price of the property was Rs 8,61,000. He paid a quarter of this amount, that is, Rs 2,15,250, on 14 July 1920, a date that likely corresponds to the conveyance, and subsequently paid the balance of Rs 6,45,750 on 20 August 1920. Later in the same year, Durga Prasad entered into an agreement with the appellants—Radha Kissen Chamria, Moti Lal Chamria, and their mother, the late Anardeyi Sethani—for the resale of the same property to them for the identical sum of Rs 8,61,000. The agreement stipulated that interest would be charged at the rate of six and three‑quarters per cent per annum, with annual rests calculated on each instalment that Durga Prasad had already paid, measured from the respective dates of payment. The agreement also required that the costs incurred by Durga Prasad in connection with the original purchase, together with interest on those costs at a similar rate, be borne by the purchasers. Because Radha Kissen, Moti Lal, and Anardeyi failed to complete the purchase promptly, Durga Prasad instituted a suit on 21 June 1923, designated as Title Suit No. 61 of 1923, before the Court of the Additional Sub‑ordinate Judge in Howrah, seeking specific performance of the agreement for the purchase of the property.

In the matter concerning the purchase of Rurmull Goenka’s property in Howrah, the plaintiff’s suit was settled by a compromise and a decree was issued on 19 April 1926 in accordance with the agreement reached by the parties. The decree required the defendants to reimburse the plaintiff for the amounts the plaintiff had paid for the purchase of the property, together with the actual expenses incurred, as illustrated in Schedule A attached to the decree. The reimbursement was to include interest calculated up to the date of payment or realization at a rate of nine annas per one hundred rupees for each Sambat month, with yearly rests computed according to the Sambat calendar up to 31 December of each year. The decree specified that the payment of the sums mentioned would be made in instalments as follows: firstly, any money then in the possession of the receiver appointed in the suit was to be paid immediately to the plaintiff; secondly, a lump sum of four lakh twenty‑five thousand rupees was to be paid at the time the present decree was executed; thirdly, thereafter a monthly instalment of thirty‑five thousand rupees was to be paid on the twenty‑first day of each month, commencing on 21 April 1926, with the first instalment of one thousand nine hundred twenty‑six rupees to be paid on that same date. These monthly instalments were to continue for seventeen months from 21 April 1926, after which the balance was to be paid in a final instalment in the eighteenth month, thereby completing full payment of the decree within eighteen months from the commencement date. The decree further provided that a failure to pay any instalment on the prescribed date, or within seven days thereafter, would cause the entire remaining balance to become immediately payable. Until the decretal sum was fully satisfied, the property remained subject to a charge for payment, although the plaintiff retained the option to enforce the decree without invoking the charge. The decree declared that ownership of the property would vest in Anardeyi Sethani from the date of the decree, ordered the immediate discharge of the receiver and required the receiver to render his accounts before the court, and stipulated that each party would bear its own costs and expenses incurred in the suit. Schedule A listed the plaintiff’s payments as follows: Rs 2,15,250 on 14 July 1920 and Rs 6,45,750 on 20 August 1920, totaling Rs 8,61,000.

Subsequent to the decree, on 17 March 1932 the respondent Durga Prasad, having received substantial sums under the decree, transferred his rights to the respondent Keshardeo. Acting as assignee, Keshardeo initiated execution proceedings against Radha Kissen, Moti Lal and Anardeyi on 10 October 1936, and this proceeding was recorded as Title Execution Case No. 68 of 1936. The death of Anardeyi Sethani occurred on 17 July 1941, after which the appellant Sew Kissendas Bhattar was entered in the record in her place as executor of her will.

After the death of Anardeyi Sethani, her son Sew Kissendas Bhattar was entered as executor of her will in Title Execution Case No 68 of 1936. Following the assignment, Keshardeo received large sums under the decree, yet the decree remained unsatisfied in full. On 11 December 1950, Keshardeo asserted that a balance of Rs 4,57,321‑3‑9 was still owed and consequently filed an application in the same Title Execution Case seeking the arrest and detention of the appellants Radha Kissen and Moti Lal to enforce the decree. The appellants acknowledged that, according to the standing decree, money was still due from them, but argued that further execution was barred by Section 30 of the Bengal Money Lenders Act, which had become operative in September 1940, because they had already paid more than twice the original claim amount on which the decree was based. It was undisputed that before the filing of the aforementioned application, a cumulative total of Rs 17,68,507 had been paid under the decree, which exceeded double the decree’s specified sum of Rs 8,61,000 by Rs 46,507‑4‑8. The appellants further sought a refund of this surplus under the Act. The Trial Judge rejected the appellants’ contentions, a decision that was subsequently upheld on appeal before the Calcutta High Court. Dissatisfied with that outcome, the appellants have now filed the present appeal before this Court.

The central issue before the Court is whether the appellants may invoke the protection afforded by Section 30 of the Bengal Money Lenders Act. Section 30 provides that a borrower shall not be liable to pay any sum exceeding the limit stipulated therein. Accordingly, the appellants must first demonstrate that they qualify as “borrowers” within the meaning of the Act. Sub‑section (2) of Section 2 defines “borrower” as a person to whom a loan is advanced, including a successor‑in‑interest or a surety; the present case does not involve a successor‑in‑interest or a surety, so the appellants must show that a loan was actually advanced to them. Moreover, Section 30 expressly confines its protection to amounts payable in respect of a loan, obliging the appellants to establish that the sums they are being required to pay arise from a loan transaction. Section 2(12) defines “loan” as an advance of money or kind made on the condition of repayment with interest, and it also embraces any transaction that is, in substance, a loan. The present dispute does not involve an advance in kind nor a straightforward cash advance. Consequently, counsel for the appellants endeavoured to persuade the Court that the appellants were being compelled to remit money under a transaction that, in substance, constituted a loan, thereby seeking to invoke the statutory limitation of Section 30.

The first issue that the Court examined was whether the transaction described in the compromise decree could be characterised as “a transaction which is in substance a loan” to the appellants. The counsel for the appellants contended that the compromise decree itself represented such a transaction. According to his submission, the original agreement for sale established that the vendor, Durga Prasad, was entitled to receive the stipulated purchase price from the purchasers, namely Radha Kissen, Moti Lal and Anardeyi. He argued that, by way of the compromise decree, the vendor had agreed to treat the amount due under the sale as a loan advanced by him to the purchasers, to be repaid with interest in a series of instalments. The Court, however, accepted the findings of the learned Judge of the High Court that there was no documentary or testimonial evidence of any separate agreement between the parties that gave rise to the compromise decree. Both the High Court and the lower tribunal had held, on the basis of the evidence, that no such agreement existed, and the Supreme Court declined to disturb that concurrent factual finding. While the compromise decree does contain an agreement, the Court observed that its terms do not demonstrate that the vendor, by agreement, treated the outstanding purchase price as a loan. The counsel was unable to persuade the Court that every instance in which a vendor leaves purchase money unpaid and later agrees to receive it with interest automatically converts the transaction into a loan; rather, each case must be examined on its own facts. In the present matter, the only facts available were those set out on the face of the compromise decree, and those facts do not amount to an agreement converting the unpaid purchase money into a loan. The decree merely records that the vendor consented to receive a part of the purchase price immediately, with the balance to be paid in instalments, and that interest would be levied on the purchase money at the same rate specified in the original sale agreement. The compromise decree also transferred the ownership of the property to one of the purchasers and created a charge on the property to secure the unpaid purchase price. Consequently, the vendor, having transferred the property, became an unpaid vendor who retained a charge on the property under Section 55(4)(b) of the Transfer of Property Act. The only novel feature introduced by the compromise decree was the modification of the payment schedule from a lump‑sum settlement to instalments, which, in the Court’s view, does not transform the nature of the amount due. The Court therefore concluded that the monies remaining due to the vendor retained their character as unpaid purchase money and were never converted into a loan.

The Court observed that the only novel feature introduced by the compromise decree was the arrangement for the purchase price to be paid in several instalments rather than as a lump sum. This alteration in the mode of payment did not, in the Court’s view, transform the nature of the amount owed to the vendor into a loan. The decree, according to the Court, left the essential character of the monies unchanged; they continued to represent unpaid purchase money that the vendor was entitled to receive under the original sale agreement. The Court therefore concluded that the compromise decree did not convert the outstanding purchase price into a loan, and the amount remained a debt arising from the sale of the property, not a monetary loan.

In support of his contention, counsel for the petitioner referred to two decisions of the Calcutta High Court, the first of which was Fateh Chand Maharshi v. Akimuddin Chaudhury (A). The Court found that the cited case did not aid the petitioner’s argument. In that case, the respondent Akimuddin had borrowed Rs 7,000 from the appellant Fateh Chand and had executed a mortgage in favour of Fateh Chand as security for the repayment of that loan. Akimuddin used a substantial portion of the borrowed money to purchase shares in a joint venture, in which Fateh Chand also held a share, thereby becoming co‑sharers. A subsequent suit for partition of the joint venture was concluded by a compromise whereby Akimuddin agreed to purchase Fateh Chand’s share for Rs 2,000 and to pay an additional Rs 330 as mesne profits and costs. A conveyance was executed in Akimuddin’s favour, but he could not pay the required sums in cash and therefore executed a further mortgage covering additional properties to secure the payment. Fateh Chand later sued on the mortgages, obtained a decree, and in July 1939 purchased the mortgaged properties in execution of that decree. After the passage of the Bengal Money Lenders Act, Akimuddin applied to have the compromise decree reopened and sought relief under the Act. The central question was whether the second mortgage (Exhibit 2) represented a loan. The Court held that, in substance, the mortgage was a loan. In delivering the judgment, Justice Mitter explained that when a transaction involves no actual advance of money but only a notional advance intended to generate interest, the law treats it as a loan for the purposes of the Act. He further noted that a renewed bond in which interest is capitalised is also a loan even though no cash changes hands at the time of execution. Consequently, the Court stressed that the substance of the transaction, rather than its form, must be examined, and that the surrounding facts and circumstances should be considered. If the transaction is determined to be an interest‑bearing investment, it must be treated as a loan.

Having explained the criteria for deciding when a transaction is, in substance, a loan, the learned judge turned to the material facts of the present dispute. He observed that Fateh Chand Mahesri was, without dispute, a money‑lender. The interest stipulated in Exhibit 2, which was the mortgage securing an amount of Rs 2,330, corresponded to the rate he ordinarily charged in his money‑lending business, namely fifteen per cent per annum with yearly rests. The same rate had been applied in his first mortgage, Exhibit 1, for a sum of Rs 7,000, a transaction that was openly recognised as a loan. In Fateh Chand’s own books the second transaction had also been recorded as a loan. The unpaid purchase price was shown as having been extinguished by a credit entry from the loan account, indicating that the amount was treated as having been paid by a notional advance on the part of Fateh Chand to Akimuddin. The judge concluded that the intention behind the transaction was to invest money at the lender’s usual rate of interest, and therefore the mortgage in Exhibit 2, although labeled as security for a purchase price, in substance constituted a loan. He further noted that the parties had behaved as if the monies secured by the mortgage were a loan, not merely an unpaid purchase price, a view corroborated by the entries in the lender’s accounts showing the purchase money being discharged and subsequently becoming due as a loan.

The judgment also addressed the broader principle that a debt may arise without an actual advance of money, yet such a debt does not automatically become a loan. As Sen J. had explained, the parties may agree to treat the debt as a loan, and in that circumstance the transaction would be regarded as a loan for the purposes of the Bengal Money Lenders Act. However, the court found no evidence of any such agreement between the parties in the present case; there was nothing to show that the original character of the monies as unpaid purchase price had been transformed into a loan. Consequently, the court held that Fateh Chand’s case did not support the position of the appellants. The judge then considered the other authority relied upon by counsel, namely Nirode Barani Debya v. Sisir Kumar Mukherjee. In that case the petitioners’ predecessors‑in‑interest owed money to the opposite party as the purchase price of certain land. Part of the purchase money had been paid in cash and part by a promissory note, which was subsequently renewed, the final renewal being undertaken by the petitioners themselves. The issue before the court was whether the last promissory note amounted to a loan transaction. The judgment on that point did not add further substance to the present dispute.

In the case under consideration, Justice Henderson delivered the judgment and observed that the essential character of the transaction was that the purchase price had been paid partly in cash and partly by a hand‑note. He stated that if the cause of action were merely the unpaid purchase price together with a reasonable rate of interest, the amount would already have been discharged. He further explained that the situation was not one in which the seller was prepared to accept a partial payment, but rather a situation in which the seller insisted on receiving full payment by a combination of cash and another form of consideration. Consequently, Justice Henderson expressed the view that the transaction, in substance, amounted to a loan.

The Court therefore proceeded on the premise that the original liability did not constitute a loan; it was simply a portion of the unpaid purchase price. The Court noted that the parties had treated the entire purchase price as having been satisfied, and that the balance equivalent to the unpaid purchase money was regarded as an amount owed by the purchaser to the vendor in the nature of a loan. On that basis, the Court acknowledged that the transaction could, in substance, be characterized as a loan. However, the Court also observed that no evidence had been produced in the present case to demonstrate that the parties had treated the amount due as a loan. The Court found nothing on the record to indicate that the monies originally payable as price had been recharacterized as a loan.

Because of this lack of evidence, the Court concluded that the appellants could not argue that they were “borrowers” or that they were required to pay a “loan” as defined under the relevant statute. Accordingly, the appellants were unable to claim any benefit under Section 30 of the Act. The Court therefore held that the appeal failed and ordered that it be dismissed with costs.