1. This appeal arises out of a suit under S. 36 of the Bengal Money-Lenders Act. The suit has been dismissed by the trial court. Hence this appeal
by the plaintiff.
2. The plaintiff''s case was that on October 7, 1942, he took a loan of Rs.7,000 from the defendant no. 1, Manindra Lal Gupta, on the security of
his Behala Property described in the plaint schedule. It was agreed between the parties that the loan would be repaid in the course of a period of
about two years and the stipulated interest for the said period was Rs.1,150. It was further agreed between the parties that in view of the Bengal
Money-Lenders Act the transaction would be made in the form of a kobala or a deed of sale accompanied by a simultaneous but separate
agreement for resale or reconveyance. Accordingly, the plaintiff duly executed and registered a kobala in favour of defendant no. 1 in respect of his
said Behala property for an ostensible consideration of Rs.8,000, although he really got from the said defendant only Rs.7,000 and that too by way
of a loan on terms, stated above, and the defendant no. 1 simultaneously executed in his turn an unregistered agreement for reconveyance of the
said property in favour of the plaintiff upon the latter''s paying to him the ostensible sum of Rs.9,150 within the said stipulated period of about two
years or within the month or Aswin, 1351 B.S., to be precise. The agreement recited payment and receipt of a sum of Rs.1,000 as earnest money,
which, according to the plaintiff, was deducted from the ostensible consideration of Rs.8,000 of the kobala, the plaintiff actually receiving only
Rs.7,000 on this latter document and that too by way of a loan as aforesaid. Within the stipulated period the plaintiff offered to pay the stipulated
amount of Rs.8,150 but the defendant no. 1 avoided contact and made it impossible for the plaintiff to make the payment and re-deem the
mortgage property. Accordingly, the plaintiff brought the present suit for necessary reliefs under S. 36 of the Bengal Money-Lenders Act.
3. The suit was instituted on December 20, 1944, and during the pendency in the trial court the plaint was amended on February 26, 1946, by
adding as defendant no. 2 as person named Narendra Krishna Mitra to whom, according to the plaintiff, the suit property has been transferred by
defendant no.1.
4. The suit was contested by both the defendants whose main defence was that the transaction in question was not a loan even in substance, and,
accordingly, the suit under S. 36 of the Bengal Money-Lenders Act did not lie. Defendant no. 1''s specific case was that the disputed transaction
was really a sale followed by an agreement of reconveyance and that the ostensible was the real state of things and, the plaintiff not having
performed his part of the said agreement or contract, he had forfeited his claim to enforce the same. The plaintiff''s allegations to the contrary were
denied by this defendant. Defendant No. 2 pleaded ignorance of the agreement for reconveyance and contended, inter alia, that he was a bonafide
purchaser for value without notice. There were also the usual defences of limitation and ""waiver, estoppel and acquiescence"". An objection was
also taken that the court-fee paid was insufficient, but such objection was clearly untenable if the suit, as framed, namely, under S. 36 of the Bengal
Money-Lenders Act, was maintainable.
5. The principal issue between the parties was whether the disputed transaction was a ""loan"" within the meaning of the Bengal Money-Lenders
Act. This was issue no. 2 framed by the trial court. It was clear that if the said issue was answered in the negative, the suit would not be
maintainable and the plaintiff would have no cause of action for the suit, and accordingly, no other question would arise. The learned Subordinate
Judge held against the plaintiff on the above issue no. 2 and that finding inevitably led to a dismissal of the suit.
6. Naturally, therefore, Mr. Gupta, who has argued the appeal on behalf of the plaintiff-appellant, has concentrated his attack on the learned
Subordinate Judge''s finding that the transaction between the parties was not a loan even in substance so as to come within the definition of ""loan
in the Bengal Money-Lenders Act. On this point as to the nature of the disputed transaction, the primary evidence is furnished by the two
documents, namely, the kabala (ex.1) and the agreement (ex.2) for resale or reconveyance. Some oral evidence was also led by the parties, but all
of it, as we shall presently see, would not be relevant or admissible in law.
7. In arriving at his finding that the disputed transaction was not a ""loan"" within the meaning of the Bengal Money-Lenders Act, the learned
Subordinate Judge made two different approaches leading to the same result. In the earlier part of his judgment he expressed the view that ""if the
transaction be a loan then it must be a mortgage by conditional sale""; and further that ""the"" transaction cannot be a loan without being also a
mortgage by ""conditional sale"". As it was clear that in view of the proviso to S. 58 (c) of the Transfer of Property Act the transaction could not be
a mortgage by conditional sale, the ""condition"" or the agreement of repurchase or retransfer being admittedly not ""embodied"" or contained in the
deed of sale but in a separate document, the learned Subordinate Judge held that the disputed transaction was not a mortgage by conditional sale,
and accordingly, in view of his opinion, quoted above, he decided that the transaction was not a loan or, in other words, that ""there was no loan"".
The learned Judge then proceeded to observe that ""as there was no loan at all there remains no scope for"" finding that there was a loan within the
meaning of the ""Bengal Money-Lenders Act of 1940"" and he concluded this part of his judgment as follows: -
Under the Bengal Money-Lenders Act or any other law a transaction which does not create the relationship of creditor and debtor between the
parties cannot be a loan at all and since by reason of the aforesaid proviso to Cl. (e) of S. 58 of the Transfer of Property Act there cannot be any
relationship of creditor and debtor between the parties unless the condition for resale is embodied in the sale deed, the transaction cannot by any
means be deemed to be a loan. I find thus that there was no loan within the meaning of the Bengal Money-Lenders Act or any other law.
8. The above reasoning of the learned Subordinate Judge was subjected to severe criticism by Mr. Gupta. He pointed that, under the definition of
S. 2(12) of the Bengal Money-Lenders Act, ""loan"" includes any transaction which is ""in substance a loan"". This obviously implied, so ran his
argument, that a transaction, which by reason of some technical provision of law could not be regarded as a loan under the general law, might still
be a loan within the meaning of the said special statute if it was ""in substance a loan"". On this question, arising under the Bengal Money-Lenders
Act, the substance, argued Mr. Gupta, must prevail over the form, even though such form was mandatory under some other provisions of law. It
was, accordingly, contended that the technical provisions of requirements of Sec. 58(c) , proviso of the Transfer of Property Act as to the form of
a mortgage by conditional sale would not prevent a transaction from being a loan within the meaning of the Bengal Money-Lenders Act if it was so
in substance"". Mr. Gupta even went further and contended that a transaction which was in substance a mortgage by conditional sale though
wanting in requirements as to form as prescribed in the proviso to sec. 58(c) of the Transfer of Property Act would be not only a ""loan"" under the
Bengal Money-Lenders Act but also a secured loan so as to attract clause (e) of Sec. 36(1) of the said Act, if the other conditions for its
application were satisfied.
9. As at present advised, we are inclined to accept the first part of Mr. Gupta''s argument, though not the second. It seems to us that in view of the
express language of the definition of sec. 2(12) a ""transaction which is in substance a loan"", though not so in form, would be a ""loan"" within the
meaning of that statute and that, accordingly, a ""transaction which is a loan in substance"", though purporting to be in the form of a ale with a
condition of retransfer or repurchase, not complying with the proviso to Sec. 58(c) of the Transfer of Property Act, and thus not being in law a
mortgage by conditional sale, would still be a ""loan"" within the meaning of the Bengal Money-Lenders Act. In that view of the matter, we do not
agree with the learned Subordinate Judge that merely because the disputed transaction is hit by the proviso to Sec. 58(c) of the Transfer of
Property Act, it must be held not be a ""loan"" within the meaning of the Bengal Money-Lenders Act. That, however, would not be of any assistance
to Mr. Gupta''s client unless it be shown further that the disputed transaction ""is in substance a loan"", or, in other words, that it was intended to
create a mortgage and failed in its effect only because of the proviso to Sec. 58(c) of the Transfer of Property Act. We are also of the opinion that
a repurchase, if it does not comply with the requirements of the proviso to Sec. 58(c) of the Transfer of Property Act, namely, as to the ""condition
being contained or ""embodied"" in the sale deed and not in a separate document, cannot be held to be a mortgage by conditional sale and cannot
also in law operate as a mortgage or as a secured loan.
10. On the last question, stated above, Mr. Gupta argued that in view of the proviso to S. 58(c) of the Transfer of Property Act such a transaction
would not in law be a mortgage by conditional sale but it might still well be an anomalous mortgage under S. 58(g) of the Act. It is to be
remembered, however, that to come within the definition or description of an anomalous mortgage, or a mortgage of any type whatsoever, the
transaction must in law be a mortgage. Unless it is first held to be a mortgage the question of its classification under any of the clauses of S. 58 of
the Act does not arise. To constitute a mortgage (where the principal money involved is one hundred rupees or upwards as in the present case) it
must be done by a registered instrument (vide s. 59) except, of course, where it is a mortgage by deposit of title deeds as defined in S. 58(f) which
is not the case here and which cannot be the case in the type of transaction, contemplated above, which at least means that if the transaction is
effected by several instruments all and each of such several instruments must be duly registered under the law. That is the statutory requirement and
it cannot be whittled down or overridden by the rule of substance. Just as the transaction cannot be held to be a mortgage by conditional sale if it
contravenes the proviso to S. 58(c) of the Act, similarly it cannot amount to a mortgage in law if it is hit by S. 59. There is, however, no such
statutory requirement in the matter of a loan and there the rule of substance prevails over form and a transaction which is in form not a loan for
example, a purported sale with an agreement of resale or reconveyance as in the case before us but is so in substance will be held to be a loan and
would certainly come within the definition of ""loan"" as contained in S. 2(12) of the Bengal Money-Lenders Act. We reject, therefore, Mr. Gupta''s
extreme argument that the transaction in the present case was an anomalous mortgage or, for the matter of that, any mortgage at all and we
proceed to consider whether it is a loan in substance so as to come within the definition of :loan"" as contained in the Bengal Money-Lenders Act.
11. The point thus requiring consideration is whether the disputed transaction is a loan in substance. On this point is whether the disputed line of
approach in the judgment of the learned Subordinate Judge the decision of the trial court is against the plaintiff-appellant. The learned Judge has
reached his conclusion on a construction of the two documents - the kabala (ex.1) and the agreement for resale (ex.2) and he has held that the
kabala (ex.1) shows that the agreement (ex.2) was a separate transaction and he has held further that it was ""impossible to construe the ''deed of
agreement as a stipulation for payment with interest'' the amount due from defendant no. 1 under the sale deed (ex.1)"". In his opinion ""the language
of the deed of agreement makes ""such construction impossible"" and his net finding on this part of the case is that -
In view of the clear terms in the two documents it must be held that by the deed of sale (ex. 1) the plaintiff made an out and out sale of the property
to the defendant no. 1 and there was no relationship of lender and borrower between the parties.
12. The learned Subordinate Judge has made no reference to any other evidence or circumstances on the question of the nature of the disputed
transaction possibly because he was not satisfied that the same or any item thereof would be admissible in law for that purpose. The appellant has
invited us to hold that this branch of the discussion of the learned Subordinate Judge suffers from incompleteness and basic misconception and it
cannot be sustained and to that argument we shall now turn our attention.
13. The direct oral evidence (vide P.W.1, P.W.3 and P.W.4) that the said transaction was intended to be a loan or mortgage is clearly
inadmissible under S. 92 of the Indian Evidence Act. It does not come within any of the exceptions to that section and is plainly excluded by the
authority of the leading case (1) ''Balkishen Das and others v. Legge, on the point. The question has to be judged on the documents in the light of
surrounding circumstances, and evidence, if any, in this latter behalf, that is, evidence to show ""how"" or ""in what manner"" the disputed transaction
or the language of the documents"" was related to existing facts, will be clearly admissible [vide the leading case, already cited, namely, Balkishen
v. Legge, and also, (2) Narasingarji Gyanagerji v. Panuganti Parthasaradhi, obviously under exception (6) to S. 92 of the Indian Evidence Act.
14. The documents to be examined are the kabala or the sale deed (ex. 1), on the face of it appears to be an out-and-out sale and the agreement,
(ex.2), also apparently looks like nothing more than a pure agreement for resale or reconveyance. It is to be seen, however, whether this apparent
was the real state of things in the light of considerations, permissible in law, as stated above. For that purpose we shall examine first the relevant
internal evidence, if any, contained in the documents themselves and we shall turn then to the admissible extraneous evidence throwing light on the
point at issue.
15. In the kabala (ex.1) there is apparently nothing which would support the appellant''s contention that the disputed transaction was a loan. The
kabala, on the other hand, appears to contain all the essential terms of a pure deed of sale including the terms as to the delivery of possession to
the transferee and also authorizing him (the transferee) or pay the future rent and taxes and also a covenant of further assurance. It also expressly
entitles the transferee to have his name mutated in the landlord''s sherista and the municipality. It recites delivery of possession to the transferee of
the part of the property which was then in the khas possession of the transferor with a stipulation that the latter would recover khas possession of
the rent of the property at his own cost and make over such possession to the transferee. The internal evidence contained in the kabala is thus fully
consistent with its character of an absolute deed of sale and is apparently inconsistent with its being a loan.
16. It seems to us further that in the ultimate analysis, the agreement for reconveyance (ex. 2) also, considered by itself or taken along with the
kabala (ex. 1) without more, is not of much assistance to the appellant. The agreement (ex. 2) recites that the property has been absolutely sold to
the Respondent no. 1. It recites further payment of an earnest money of Rs.1,000. It fixes a time, namely, end of Aswin 1351 B.S., for the
completion of the purchase and provides that the vendee''s default to complete the purchase within the stipulated time would entail forfeiture of the
earnest money or, at the vendor''s option, specific performance at his (the vendor''s) instance. It also provides for specific performance at the
instance of the vendee if due to the vendor''s default the purchase be not completed within the stipulated period. It then goes on to state that on the
expiry of the month of Aswin, 1351 B.S., the vendee would have no right to keep the ""agreement for sale"" in force.
17. Reading the document (ex. 2) by itself, it seems to us that it was apparent nothing more than an agreement for resale or reconveyance. Mr.
Gupta argued that under the document, the vendor could compel the vendee to make the purchase at any time and there was no time-limit fixed in
the document in that behalf. In this connection to drew our attention to the corresponding term in favour of the vendee and sought to urge that
under it the vendee''s right was of a limited character and he could not, after the expiry of Aswin, 1351 B.S., require the vendor to reconvey the
property to him. We do not, think that any such distinction is borne out by the document. In our opinion, a fair reading of the document amply
shows that a time for performance was fixed and in case of default on the part of either party the other was entitled to enforce specific performance
in accordance with law including also the relevant law of limitation which fixed the same outer limit of time in either case. We cannot, therefore,
accept Mr. Gupta''s argument, noted above. It was also pointed out by Mr. Gupta that although in the document (ex. 2) there was provision for
forfeiture of the earnest money in case of default on the vendee''s part there was no corresponding provision for refund of the same if the contract
was broken by the vendor. We do not, however, think that this is of much significance. In case of breach on the vendor''s part the vendee would
be entitled under the law to a return of the benefit, that is, refund of the earnest money, taken or received by the vendor and the absence of a
specific provision in that behalf in the agreement of contract of sale, resale in the present case would not, in our opinion, affect this right of the
vendee and would thus be of little moment. Mr. Gupta also pointed out that under the document (ex. 2) the stipulated period for getting the
reconveyance was only a little over two years and his submission was that this was rather short or unusual for a contract of resale and was more in
consonance with the transaction being a loan. This submission is not wholly without force but we are unable to hold that the circumstances on
which it is founded is of any overriding importance in the present case. It is not also altogether free from ambiguity. The agreement (ex. 2)
apparently shows that the Respondent no. 1 was no agreeable to a longer period and so the appellant had to be content with that period of a little
over two years. We cannot, therefore, persuade ourselves to accept this submission of Mr. Gupta and hold from the agreement (ex. 2), read by
itself or along with the kabala (ex. 1), that the disputed transaction was a loan. It follows then that the internal evidence furnished by the two
documents (ex. 1 and 2) is of little help to the appellant and the learned Subordinate Judge was right in his reading of the two documents simpliciter
and neither the agreement (ex. 2) by itself nor read in the light of the kabala (ex. 1) without more can possibly lead to a different result.
18. We turn next to the extraneous evidence to which reference is permissible under the law. That, in the present case, obviously consists of
evidence to the show how or ""in what manner"" the disputed transaction or ""the language of the documents"" (exs. 1 and 2) was related to existing
facts, and we proceed now to examine the effect of that evidence.
19. The agreement (ex. 2) recites payment of an earnest money of Rs.1,000. This payment is apparently borne out by the evidence of the appellant
himself when he says: -
I received Rs.8,000 but out of this amount Rs.1,000 in one currency note was taken from me as earnest money on the deed of agreement for
resale"" (vide p. 21, pt. 1 of the Paper Book).
20. The recital and the evidence, however, do not necessarily go against the appellant''s case of a loan of Rs.7,000. The extra payment of
Rs.1,000 might well have been to keep up the show if that was the arrangement between the parties. The learned Subordinate Judge obviously
placed too much reliance on this payment of Rs.8,000 instead of Rs.7,000 to find definitely that the parties intended the kabala and the deed of
agreement to be two separate transactions.
21. The discussion so far made is predominantly in the respondents'' favour but even then it seems to us that no final conclusion ought to be made
against the appellant on this part of the case without full and proper examination of certain other aspects of the matter which we shall now indicate
below.
In the circumstances of this case the true value of the property at the time of the proposed sale on October 7, 1942, and the question of
possession, immediately after that date, appear to us to be of considerable importance and we do not think that they can or ought to be lightly
brushed aside. We feel strongly that without an investigation into those two questions it is hardly proper to express any definite opinion on the real
nature of the disputed transaction. We are supported in this view by the authority of this Court in the case of (3) Shazadi Bibi v. Sheikh Jamal and
others, and plainly also, it well accords with the two decisions of the Judicial Committee, already cited, namely, Balkishen v. Legge, and
Narasingerji Gyanagerji v. Panaganti Parthasaradhi.
22. The kabalas [(exs. 1 (a) and 1 (b) ] clearly show that Rs.15,000 was paid for the disputed property in 1939-40. The other kabala (ex E)
shows that it was sold to Respondent no. 2 by Respondent no. 1 for Rs.11,000 in 1944. The circumstances of this sale, however, are apparently
open to some comment and, although they do not throw any apparently open to some comment and, although they do not throw any doubt on the
genuineness of the transfer, it is not quite clear whether the property sold was really worth Rs. 11,000 or more at the date of that sale. In the
kabala (ex. 1), however, the consideration money is stated to be Rs.8,000. On these materials it is at least proper to hold that a case has arisen for
an enquiry as to whether the said figure of Rs.8,000 represented the value of the property or something else, or to put in another way, as to
whether there was any sufficient contrast between the value of the property and the consideration that passed under the kabala (ex. 1) to affect the
ostensible nature of the disputed transaction.
23. On the question of possession too the position is hardly satisfactory. There is no clear evidence on the present record that Respondent no. 1
got possession after the kabala (ex. 1) as recited therein. The evidence that is there of possession since the date of that kabala is extremely meager
and even that is highly conflicting in material particulars. It is true that the kabala (ex. 1) recites that the vendee was given khas possession of a part
of the disputed property. But the important thing to consider is whether the recital was true. Our attention was drawn to the appellant''s evidence in
cross-examination that after the kabala (ex. 1) he made no payment of rents or taxes. From that, however, it does not necessarily follow that the
appellant had no further interest or possession in the disputed property. It seems to us, therefore, that this question of possession also will have to
be properly investigated and for that purpose much fuller evidence will be necessary.
24. We, accordingly, propose to remand the case to the trial court for a consideration of the above two questions of possession and value and for
a final decision of the suit in accordance with law in the light of its ultimate findings on those two questions and other relevant circumstances. We
are not unmindful of the fact that the two questions, to which reference has been made above, were not very clearly raised in the pleadings, which
possibly accounts for the unsatisfactory state of the evidence on the said points. We feel, however, that the justice of the case demands
consideration of those questions and we do not, therefore, hesitate to direct a remand, as proposed above. The parties will be entitled to adduce
further evidence on the points on which the case now goes back to the trial court.
25. We direct further that the re-hearing will be only as between the plaintiff and the defendant No.1. The subsequent transferee-defendant no.2 is
undoubtedly a real purchaser for value, although he may or may not strictly satisfy the rests of a bonafide purchaser without notice. This latter fact,
however, when there is no evidence of any fraud or collusion on his (defendant no.2''s) part, is hardly material so far as he is concerned, in view of
our finding that the disputed transaction cannot in law be a mortgage. That is enough for the purpose of holding that defendant no. 2 (who is
Respondent no. 2 in this Court) will not be affected by the disputed transaction. He will, therefore, be discharged from the suit which will now be
re-heard, with only the plaintiff and defendant no. 1 on the record, in accordance with law and in the light of the directions given above and the
observations, made in this judgment, and the court, if it ultimately finds that the disputed transaction was a ""loan"" within the meaning of the Bengal
Money-Lender Act, will give such relief to the plaintiff as is available to him against defendant no. 1 under S. 36 of the said Act.
The appeal is allowed in part as above but we direct that, in the circumstances of this case, the parties will bear their own costs in all the courts up
till this stage. Further costs will be in the discretion of the learned Subordinate Judge, who will eventually dispose of the suit in pursuance of this
judgment.
Mookerjee, J.
26. I agree.