Sardar Samsher Singh vs Raja Sardar Narain And Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 216 of 1954

Decision Date: 5 August 1960

Coram: K.C. Das Gupta, S.K. Das, M. Hidayatullah, J.C. Shah, N. Rajagopala Ayyangar

In the matter titled Sardar Samsher Singh versus Raja Sardar Narain and others, the Supreme Court delivered its judgment on 5 August 1960. The judgment was authored by Justice K C Das Gupta, who was joined on the bench by Justices S K Das, M Hidayatullah, J C Shah and N Rajagopala Ayyangar. The case was reported in the All India Reporter at volume 1960, page 1249. The principal question before the Court concerned the operation of the Debt Relief provisions contained in the United Provinces Encumbered Estates Act, 1934, specifically the effect of section 14(4)(a) on a decree that had been passed in respect of a mortgage‑based loan.

The factual backdrop involved a loan of one lakh rupees extended by the respondent, designated as D, to the mortgagor, designated as N, on 1 March 1924. The loan was secured by a mortgage over a house located in Butlergunj, Lucknow, together with the entire zamindari interest in the village of Parsera. The parties stipulated an interest rate of eight per cent per annum, compounded, with interest accruing in six‑monthly installments. In 1932 the mortgagee initiated suit proceedings to enforce the mortgage. The trial court rendered a decree ordering the mortgagor to pay a sum of Rs 1,83,781‑5‑9 representing principal and accrued interest up to the date of the suit, together with an additional sum of Rs 49,280‑2‑6 representing interest from the date of the suit to the date fixed for payment. The decree further prescribed that any future interest after the fixed date would be calculated at a reduced rate of six per cent per annum simple on the principal amount. When the mortgagor failed to satisfy the decree by the stipulated deadline, a final decree dated 9 May 1935 ordered the sale of the mortgaged property to recover a total amount of Rs 2,37,503‑5‑6, which had become due.

Subsequently, on 26 October 1936, the mortgagor made an application under section 4 of the United Provinces Encumbered Estates Act, 1934, seeking to have the provisions of that Act applied to his case. Section 14(4)(a) of the Act mandates 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.” The mortgagor argued that, pursuant to this provision, the creditor could not recover any interest that exceeded the remaining principal of one lakh rupees. The creditor, on the other hand, contended that the earlier decree should not be reopened because the principle embodied in section 14(4)(a) had not been breached at the time the decree was passed.

The Court examined the language of section 14(4)(a) and held that the phrase “on the date of the application” was deliberately inserted to confer a benefit on the applicant by limiting the recoverable interest to an amount not greater than the principal that remained outstanding on that specific date, irrespective of the amount of interest that might have accrued under the original contract. The Court further concluded that the existence of a prior decree did not preclude the application of the statutory provision to the applicant. Consequently, the Court directed that the proper decree on the application should order the payment of two lakh rupees representing the principal and interest, together with costs, interest pendente‑lite and future interest calculated at a rate of four per cent per annum.

In reaching this conclusion, the Court rejected the earlier decision in Pandit Ramsagar Prasad v. Mst. Shayama, A I R 1939 Oudh 75, and expressly disapproved of that authority. The Court also referred to the decision in Rukun‑uddin v. Lachhmi Narain, I L R 1945 All. 307, for its relevance to the issues involved. The final decree thus reflected the Court’s interpretation of the statutory limitation on interest under section 14(4)(a), ensuring that the interest recoverable could not exceed the principal still due as of the application date, and ordering the appropriate adjustments to the parties’ obligations.

The appeal was filed in the civil appellate jurisdiction under Civil Appeal No. 216 of 1954, challenging a judgment and decree dated 26 September 1946 rendered by the former Chief Court of Avadh at Lucknow in First Appeal No. 7 of 1940. The appellant was represented by counsel, while the respondent numbered one was represented by a team of counsel. The judgment was delivered on 5 August 1960 by Justice Das Gupta. The matter principally concerned the construction of section 15 of the United Provinces Encumbered Estates Act, 1934. The factual background began on 1 March 1924 when Sardar Nihal Singh, who would later become the appellant, obtained a loan of one lakh rupees from Raja Durga Narain Singh, who would later become the respondent. The loan was secured by a mortgage on a house situated in Butlerganj, Lucknow, together with the entire zamindari interest in the village of Parsera. The agreed rate of interest was eight per cent per annum, compounded with six‑monthly rests. In 1932 Raja Durga Narain Singh instituted a suit seeking recovery of Rs 1,83,791‑5‑9 representing principal and interest, and also sought the sale of the mortgaged property. The Subordinate Judge of Lucknow, in the suit, issued a preliminary decree that fixed the amount due on the mortgage as calculated up to 29 March 1935. The decree recorded a sum of Rs 1,83,791‑5‑9 as the principal amount due up to the date of the suit, an additional Rs 49,280‑2‑6 as interest accrued from 19 March 1932—the date the suit was filed—to 29 March 1935, the date fixed for payment, and awarded costs of Rs 4,314‑2‑9. The defendant‑mortgagor was ordered to pay the aggregate amount of Rs 2,37,385‑11‑0 on or before 29 March 1935, together with future simple interest at six per cent per annum on the principal sum of one lakh rupees. When the defendant failed to satisfy this order, the mortgagee‑decree holder moved the court, and on 9 May 1935 the court rendered a final decree directing the sale of the property to recover Rs 2,37,503‑5‑6, together with the future interest as stipulated in the preliminary decree. This final sum comprised the total of Rs 2,37,305‑11‑0 from the preliminary decree, Rs 116‑10‑1 representing interest from 30 March 1935, and a nominal rupee one as the cost of the final decree. An application for revision under section 115 of the Code of Civil Procedure relating to this decree was dismissed by the Chief Court of Oudh on 20 April 1937.

Prior to that dismissal, on 26 October 1936 Sardar Nihal Singh filed an application under section 4 of the United Provinces Encumbered Estates Act, seeking to have the provisions of the Act applied to his case. Following the filing of this application, the mortgagee‑decree holder, Raja Durga Narain Singh, submitted a written statement of his claim on 30 September 1937. In his statement, he asserted that the amount due to him pursuant to the decree amounted to Rs 2,51,904‑8‑6, which incorporated Rs 14,300 as interest accruing after the final decree up to the date of the statement, together with a sum of Rs 51‑3‑0 representing the costs awarded in his favour by the Oudh Chief Court when it rejected the mortgagor’s revision application.

On September 30 1937, the decree for costs awarded in favour of the mortgagee‑decreeholder amounted to Rs 51‑3‑0, as recorded by the Oudh Chief Court when that court rejected the mortgagor’s application for revision. The decreeholder then prayed that a decree for Rs 2,51,904‑8‑6 be passed in his favour against the applicant, Sardar Nihal Singh, and against the property of the applicant. The applicant contested the claim, arguing that the principal amount he had borrowed from the decreeholder was Rs 1,00,000 and that, under section 14 of the Encumbered Estates Act, the decreeholder was not entitled to recover any interest in excess of that principal sum. The Special Judge rejected this plea. He held that the decreeholder was entitled to the sum of Rs 2,37,503‑5‑6 for which the final decree had been passed, and that an additional Rs 51‑3‑0 should be awarded as costs in the matter of the revision application. Moreover, the Special Judge ordered interest at the rate of six per cent per annum on the principal of Rs 1,00,000, calculated from the date of the final decree, 29 May 1935, up to the date of the application under the Encumbered Estates Act, 26 October 1936. Accordingly, the Special Judge rendered a simple money decree in favour of the decreeholder for Rs 2,46,338‑8‑6, together with proportionate costs and future interest at the rate of four per cent per annum, simple, from the date of the application until realisation.

Upon appeal, the Chief Court of Oudh rejected the appellant’s contention that the Special Judge was bound by section 14 of the Act to limit the decree to a sum of Rs 2,00,000. The Chief Court observed that the preliminary decree had found an amount of Rs 1,83,791‑5‑9 due on the mortgage as of 29 March 1932, and that this finding was not inconsistent with section 14 of the Encumbered Estates Act; consequently, the Special Judge was required to accept that finding under section 15. However, the Chief Court held that the decree’s allowance of interest pendente lite on that amount, from 19 March 1932 to 29 March 1935 at eight per cent per annum, conflicted with sub‑section 7 of section 14. Accordingly, the Chief Court reduced that pendente lite interest to a simple rate of four and a quarter per cent. The Court further added Rs 4,314‑2‑9 as costs, Rs 1 as costs of the final decree, and Rs 51‑3‑0 as costs of the revision application. It then ordered that the principal sum of Rs 1,00,000 should bear interest from 29 March 1935 to the date of the application under section 4 of the Encumbered Estates Act, that is, 26 October 1936, and that the aggregate of these amounts should thereafter bear interest at four per cent per annum from 27 October 1936 until realisation. The Chief Court directed that a decree reflecting this composite sum replace the decree previously passed by the Subordinate Judge. An application for leave to appeal this decree to the Privy Council was filed on 13 January 1947 and was disposed of on 14 April 1953. The Court further noted that the valuation of the suit exceeded Rs 20,000.

The Court noted that the value of the appeal before the Supreme Court was recorded as Rs 41,971‑2‑9. In view of the modification that the Chief Court had made to the decree of the lower court, the Chief Court issued a certificate stating that the case satisfied the requirements of section 110 of the Code of Civil Procedure and that the applicant possessed a right to appeal to the Supreme Court. Relying on that certificate, the present appeal was filed. When the appeal was listed for hearing before a bench of four judges, counsel for the respondents, Mr Andley, declared that he intended to raise a constitutional issue. The Court therefore ordered that the matter be referred to a Constitution Bench, and it was on that basis that the appeal reached the Court for final disposal. Mr Andley subsequently explained that the constitutional question he had contemplated concerned whether the judgment of the Chief Court constituted an affirmation under Article 133(1) of the Constitution; however, he indicated that he did not wish to pursue that point. Because Mr Andley did not press the constitutional argument, the Court held that no further discussion of that issue was required. The substantive dispute between the parties, as already identified, centered on the interpretation of section 15 of the Encumbered Estates Act. The relevant portion of section 15 reads: “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 section 14.” A later amendment inserted after the words “section 14” the words “or section 4 of the U.P. Zamindars Debts Reduction Act, 1952”; the Court found that amendment to be irrelevant for the present purpose. Section 14 itself provides that the Special Judge shall, by a written order, fix a date for enquiring into the claims made under the notice published pursuant to section 9 and shall give notice of that date to all claimants and to the person who made the application under section 4. The Special Judge shall examine each claim, hear any parties desired to be heard, consider any evidence produced, and determine the amount, if any, due from the landlord to the claimant on the date of the application under section 4. All evidence recorded in any suit or proceeding stayed under subsection (1) of section 7 may be taken by the Special Judge as evidence recorded before himself. 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 that such a court would apply, subject to the provisions that follow.

The Court explained that the Special Judge must apply certain specific rules when determining the amount of interest due on the date of the application. First, the interest that may be claimed cannot exceed the portion of the principal that remains outstanding on that date. Second, the provisions of the United Provinces Agriculturists Relief Act of 1934 are not to be applied to proceedings that fall under this Act. In order to identify the principal for the purpose of the first rule, the Special Judge must treat as principal any accumulated interest that was converted into principal either by a statement of account, a settlement of account, or any contract executed during the transaction on or before 31 December 1916. An explanatory note clarified that interest which, on or before 31 December 1916, became part of the principal by the express terms of the original contract shall be deemed to be principal for the purposes of this section. Conversely, the Special Judge must not treat as principal any accumulated interest that was converted into principal by a statement, settlement, or contract made after 31 December 1916. If the Special Judge determines that an amount is owed to the claimant, he shall issue a simple money decree for that amount together with any costs that he may allow for the proceedings in his own court and for any civil court proceedings stayed under this Act. The decree may also include pendente‑lite and future interest at a rate not exceeding the rate specified in section 27. If the Special Judge finds that no amount is due, he may issue a decree for costs in favour of the landlord. Such a decree shall be treated as a decree of a civil court of competent jurisdiction, but it shall not be executable in Uttar Pradesh except in accordance with the provisions of this Act. The Court further observed that there can be no doubt of any inconsistency in a finding of a court that has already passed a decree based on a loan with the provisions mentioned in sub‑sections 1, 2 and 3 of section 14. Likewise, there is no inconsistency with the provisions of sub‑section 7 of section 14, because those provisions become relevant only after the Special Judge has determined the amount due to the claimant, and any inconsistency of a decree with section 14 arises under section 15 at the stage when the amount is being ascertained. Nevertheless, sub‑sections 4, 5 and 6 of section 14 require careful consideration by the Special Judge when he reviews a decree of a civil court, in order to determine whether any of the court’s findings conflict with those provisions.

In this matter, the Court explained that when a Special Judge reviews a decree of a civil court, he must examine whether any of the findings of that court are inconsistent with the provisions of section 14 of the Encumbered Estates Act. If any finding is found to be inconsistent, the Special Judge is required to reject that finding to the extent of the inconsistency and to modify the decree accordingly. For example, if the civil court that passed the decree failed to consider the provisions of the Usurious Loans Act 1918, which would be advantageous to the landlord claimant, the Special Judge must apply section 14(4)(b) of the Act and adjust the finding on the amount due after incorporating the Usurious Loans Act. Conversely, if the civil court had based its finding on the Uttar Pradesh Agriculturists Relief Act 1934, that finding cannot be retained where it conflicts with subsection 4(c) of section 14; the Special Judge must therefore modify the decree by excluding the effect of the Agriculturists Relief Act. In the same way, where the civil court’s determination of the amount due is inconsistent with subsections 5 or 6 of section 14, the Special Judge must modify the finding by applying those respective provisions. Likewise, if the decree contains a finding that conflicts with subsection 4(a) of section 14 of the Encumbered Estates Act, that portion of the finding must be rejected. The Court then turned to the specific question that arose in the present case: when the amount due on a loan was adjudicated at the date of suit, the civil court did not allow interest to exceed the portion of the principal that remained unpaid at that date. The issue was whether this finding was inconsistent with section 14(4)(a) because, as a result, the interest due on the date of the application would exceed the unpaid principal on that same date. The claimant argued that it was sufficient that the court had followed the principle that interest may not exceed the unpaid principal, and that the consequent excess of interest on the date of application was irrelevant. The Court rejected that contention, holding that subsection 4(a) requires 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” are mandatory and cannot be ignored, as they were deliberately inserted to benefit the landlord applicant by limiting any interest to the remaining principal at the time of application. Moreover, the legislative scheme makes clear that even when a prior decree exists, the findings of that decree are to be accepted only so far as they are not inconsistent with the provisions of section 14, and the Special Judge retains the duty to correct any inconsistency.

In interpreting the provision 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 Court emphasized that the phrase “on the date of the application” could not be disregarded. The Court observed that the legislators deliberately inserted those words to protect the landlord applicant, so that any interest accruing under the contract would be limited to the amount of principal that remained unpaid at the moment the application was filed. The legislation further provided that, if a decree had been made before the application on the basis of the loan, the findings of the court that passed the decree should be accepted unless they conflicted with the provisions of section 14. This language showed that the existence of an earlier decree did not relieve the Special Judge of the duty to apply the benefit of section 14. Because the decree was rendered before any application under the Encumbered Estates Act, the Court that issued the decree could not have complied with section 14(4)(a) at that time.

Nevertheless, the Court held that when the Special Judge must reject findings that are “inconsistent” with section 14, he must examine the effect of each finding of the earlier court to determine whether any inconsistency exists. If the result of the decree’s findings is that the rule of section 14(4)(a)—that interest due on the date of the application may not exceed the unpaid principal on that same date—is violated, then those findings must be regarded as inconsistent with the statute. The respondent’s counsel argued that, because the decree did not allow interest as of the suit date to exceed the principal then remaining unpaid, there was no inconsistency with section 14(4)(a). In effect, the counsel sought to read the words “insofar as they are inconsistent with the provisions of section 14” to mean “insofar as they would have been inconsistent if the date of institution of the suit were treated as the date of the application.” The Court rejected this construction, finding no justification for it. Accepting such an interpretation would defeat the beneficial purpose of the legislation and would not reflect the natural meaning of the phrase “insofar as they are inconsistent with the provisions of section 14.” Moreover, the Court disagreed with the view of the Chief Court that the Special Judge need only consider whether the civil court could have passed the decree had it been required to apply section 14; the Court found that approach to be inappropriate.

The Court held that it could not accept the proposition that the provisions of section 14 should be applied by treating the date of institution of the suit as the date of the application. This approach had previously been adopted by the Chief Court of Oudh in the earlier decision of Pandit Ramsagar Prasad v. Mst. Shayama (1). The Court also referred to a decision of a Full Bench of the Allahabad High Court in Rukun‑uddin v. Lachhmi Narain (2), which examined whether a finding in a civil decree that the creditor could receive interest only at the rates specified in the Uttar Pradesh Agriculturists Relief Act conflicted with the provisions of section 14 of the Uttar Pradesh Encumbered Estates Act and therefore was not binding on the Special Judge hearing an application under the Encumbered Estates Act. The Allahabad High Court held that such a finding must be regarded as inconsistent with section 14 and consequently could not bind the Special Judge. The Court found this view correct, noting that section 14(4)(c) expressly states that the provisions of the Uttar Pradesh Agriculturists Relief Act do not apply to proceedings under the Encumbered Estates Act. The Court observed that Mr. Justice Verma, in his judgment, had endorsed the view expressed in Ramsagar Prasad’s case (1). However, the Court expressed a contrary opinion, stating that the view adopted in Ramsagar Prasad’s case and followed by the Chief Court in the present matter was erroneous. The Court therefore concluded that even when a civil court has issued a decree concerning a loan, the Special Judge remains bound by section 14(4)(a) of the Act, which requires that the interest claimed on the date of the application may not exceed the portion of the principal that was due on that date. Accordingly, the Court held that in the present case the Special Judge should have limited the interest due on the application date of 26 October 1936 to rupees one lakh, which represented the principal still outstanding on that date. The Court further explained that under subsection 7 of section 14 the Special Judge is required to pass a simple money decree for that amount, together with any costs the Judge may allow for proceedings in his own court and in any civil court stayed under the Act, and to include pendente lite and future interest at a rate not exceeding that specified in section 27. It was on the basis of this provision that both the Special Judge and the High Court allowed interest at four per cent per annum. Consequently, the proper decree that the Special Judge should have issued would have been for rupees two

In this case the Court found that the amount owed on the loan was to be fixed at the sum of two lakh rupees together with the interest that was legally permissible. In addition to that principal the Court added a sum of Rs 4,314‑2‑9, a further sum of Rs 51‑3‑0 and an extra amount of one rupee that was awarded as costs, the award being supported by the authority recorded in A.I.R. 1939 Oudh 75. Adding all of those components together the Court arrived at a total monetary liability of Rs 2,04,366‑5‑9. The Court also stipulated that the costs should be apportioned proportionately and that interest should accrue both during the pendente lite stage and for the future period. The rate of that interest was fixed at four per cent per annum on a simple basis, and the interest was to be calculated from the date of the appellant’s application, which was 26 October 1936, continuing until the time of realisation of the decree. Having examined the material before it, the Court concluded that the appeal must be allowed. Consequently, the decree that had been issued by the lower courts was set aside. In its place the Court ordered that a new money decree be issued, and that decree must contain the amounts and interest provisions described above. The Court further directed that the appellant should be awarded his costs in the appeal. The appeal was therefore allowed.