P L D 1957 (W (PLP)

SHABIR AHMAD, J.‑

Its suit for a declaration that it had become owner of two motor buses, a Dodge manufactured in 1.952 and a Bedford manufactured in that year, whose registration numbers are P B V‑363 and P B V‑367, res pectively, and for consequential reliefs to the effect that Muhammad Sharif, the sole defendant in the suit, be restrained from interfering with the use of the vehicles by the company and to have them transferred in official documents to the company and be directed to pay Rs. 7,204 to the company, having been dismissed in its entirety by Sheikh Nur Muhammad, Senior Civil Judge, Jhang, the Azad Transport Company Limited. Shorkot, has presented the present appeal with a view to having its suit decreed in its entirety. The plaint averred, inter alia, that the defendant had given the plaintiff company the two motor buses and had agreed to take their price by instalments, that the transaction between the parties was a loan and as the interest charged, by the defendant was usurious he was not entitled to get all that the plaintiff company had agreed to pay him, and had already realised from the company Rs. 7,204, more than the law allowed him to do. The suit was resisted by the defendant who pleaded inter alia, that the transaction between the parties was not a loan, that the buses had not been sold to the plaintiff company and that the intention of the parties, as evidenced by a registered document dated the 11th of July 1953, which was to become operative on the 1st of August 1953, was that the plaintiff company could not become the owner of the vehicles till the terms embodied in the document had been fully complied with. On the pleadings of the parties, the learned trial judge framed seven issues, the first three of which were of a preliminary nature and need not be mentioned: The issues on merits were these:‑-- (4) Whether the defendant had sold the two lorries in question to the plaintiff company for Rs.35,000 on the conditions specified in para 2 of the plaint and if so with what effect ? (5) Whether the plaintiff had paid Rs.47,400 to the defendant ? If so, with what effect ? (6) Whether the plaintiff is entitled to recover Rs. 7,204 from the defendant for the reasons stated in para. No. 4 of the plaint ? (7) Relief. The learned trial judge found issue No. 5 in favour of the plaintiffs and issues Nos. 4 and 6 against them, with the result that, as already mentioned, the suit was dismissed. At the hearing of the appeal, the finding of the learned trial Judge that the defendant had received a sum of Rs. 47,400 from the plaintiff company was not questioned by the learned counsel for the respondent and the main question that requires determination in the present appeal is whether or not the transaction between the parties was one of loan as claimed by the plaintiff. At one stage of the arguments in the appeal it was contended that the transaction was one of hire‑purchase but this contention cannot succeed. One of the main features of a transaction of hire‑purchase is that the hirer has the option to terminate the contract and return the article which he has been using and might ultimately become owner of. In the present case the document did not even hint that the plaintiff company could return the vehicles to the defendant and it is, therefore, beyond dispute that transaction was not one of hire‑purchase. In order to determine the real nature of the transaction, some of its main features have to be considered. The regis tered document, which lays down the conditions between the parties and which is Exh. P. 1 on the record, recites, inter alia, that Muhammad Sharif, the sole defendant and the sole respondent in the appeal, had bought two motor buses for a sum of Rs. 35,000 and was entrusting them to the plaintiff company on the condition that he will be paid Rs. 2,700 per month for sixteen months, from the 1st of August 1953, to the 30th of November 1954. The sum of Rs. 2,700 was made up by Rs.1,500 as part of the principal and Rs. 1,200 as profits. After sixteen instalments of Rs. 2,700 per month had been paid, the plaintiffs had to pay the balance due on the principal, that is, Rs. 11,000, by the 15th of December 1954, and if that were not done, they would be liable to pay Rs. 1,800 as monthly instalments, of which Rs. 1,500 would represent the principal and Rs. 300 the interest, and this will go on till the amount had been paid off and that it was only when the entire amount had been realised by the respondent that the plaintiff company would become owner of the two buses. It was also provided in the deed that if the entire price of the two buses, i.e., Rs. 35,000, or the balance due out of that, is paid in a lump sum at any time the defendant would still be entitled to receive profit for twelve months, i.e.. Rs.14,

400. Sardar Muhammad Iqbal, the learned counsel for, the appellant, contended that if all the terms of the document, Exh. P. 1. which evidenced the transaction between the parties be considered together, it becomes apparent that the title in the two buses mentioned in the plaint had passed to the plaintiff company on the date when the document was executed and only the price of the vehicles, was to be realised by the defendant in the manner mentioned in the deed. He proceeded to urge that if the relevant provisions of the Usurious Loans Act (Act X of 1918) be applied to the docu ment, it becomes crystal clear that the transaction between the parties with regard to the money involved was nothing but a loan and the money the defendant was to get over and above the sum of Rs. 35,000, mentioned in the deed as the price of the two vehicles, was nothing but interest. In this connection, he made a reference to section 2 of Act X of 1918 which runs as under :‑ "

2. In this Act, unless there is anything repugnant in the subject or context,‑ (1) "Interest" means rate of interest and includes the return to be made over and above what was actually lent whether the same is charged or sought to be recovered specifically by way of interest or otherwise. (2) "Loan" means a loan whether of money or in kind and includes any transaction which is, in the opinion of the Court, in substance a loan." The learned counsel for the appellant contended that not withstanding the fact that the deed regarding a transaction may have been so cleverly worded as not to make the transaction appear a loan it was open to the Court under the above‑mentioned provisions of law to look at the pith and substance of the transaction and to hold it to be a loan if it was in fact a transaction of that nature. This contention is un‑assailable because subsection (2) of section 2 of Act X of 1918 gives the Court vast powers to examine a transaction and to hold it to be a loan even though the parties had called it. by some other name. The learned counsel for the respondents contended in reply that though in this respect the Court had wide powers yet it could not altogether ignore the intention of the parties as expressed by the words used in the deed, but I cannot accept the contention of the learned counsel for the respondent that though section 2 of Act X of 1918, gave the Court unfettered powers to determine that a transaction was in fact a loan, it could not hold the transaction to be a loan if the deed evidencing it did not on the face of it appear to be a transaction of loan. It was also contended by the learned counsel for the respondent that even if the Court had unlimited powers to determine the nature of the document in question, yet the document, Exh, P. 1, could not be held to be a loan because it was obvious from the terms that the ownership of the vehicles did not pass to the plaintiff company on the date on which the transaction became complete and that the ownership remained with the defendant and would pass to the plaintiff company only when every term of the deed had been carried out. I am prepared to concede that the document is very cleverly worded, and it is obvious that the intention was to evade the application of all laws which aimed at preventing creditors from charging unduly high rate of interest, but the powers of the Court to hold a transaction to be a loan are very wide under Act X of 1918 and the fact that on the face of it the document executed by it does not purport to be evidencing a transaction of a loan cannot disentitle the plaintiff company to relief if it is found to be entitled to it. I have carefully gone through the document, Exh. P‑1, and have arrived at the conclusion that it evidenced a loan to the plaintiff company though it contained a number of compli cated conditions which appear to have been inserted in. the document in order to give the defendant an opportunity to urge that the transaction lacked some of the peculiar features of a loan. As I read the document, it appears to be one aimed at realising the maximum of interest from the plaintiff company and the conscience of the defendant appears to have been sought to be palliated by the return on the loan being described as profit and not as interest, It may be that by describing as profit the return he took the defendant felt that he was not offending against any law or moral code, but the return that a creditor takes is nothing but interest under the provisions of subsection (1) of section 2 of the Usurious Loans Act, 1918, a and the fact that it is not described as interest does not change its character. The object of the terms of the deed was to enable the defendant to realise within the space of less than a year and a half no less than Rs. 43,200 from the plaintiff company by giving it two vehicles which had cost him Rs. 35,000 and be in a position to claim at least Rs. 11,000 more. It was contended by Sheikh Bashir Ahmad, the learned counsel for the respondent, that no law prevented a person from making a profit and, therefore, the mere fact that if the money had been paid to the defendant on the very next day he would have realised no less than Rs. 14,400 over and above the price of the two vehicles could not make the transaction one of loan. In support of his contention, Sheikh Bashir Ahmad relied on a Single Bench decision of Tek Chand, J. in A I R 1939 Lah. 104 wherein it was held that a sale on credit is not an advance in cash or kind at interest and is, therefore not a "loan" as defined in the Punjab Regulation of Accounts Act (Punjab Act I of 1930). It is not necessary to examine that decision critically because the transaction dealt with by it was different in material respects from the one in the present case. Had the present transaction been one of an above board sale it is possible that this contention of the learned counsel for the respondent may have succeeded, but, when all the terms of the' deed, Exh. P‑1, are considered together, it becomes clear that it is one of "loan" and cannot be considered to be anything else. It is not without signifi cance that the price of the two vehicles has been described in the document, Exh. P‑1, as the principal money due and though this description can be used against the respondent it is not merely the fact that the money the company had to pay was described as the principal money which impels me to hold that the buses had been sold and their price was owed by the plaintiffs to the defendant. Having held that the transaction between the parties was in reality a loan, I proceed to consider whether or not the plaintiffs are entitled to any relief. It was contended by Sardar Muhammad Iqbal that as the rate of interest was much more than was allowed by the Usurious Loans Act, 1918, as amended by the Punjab Relief of Indebtedness Act, 1934, the plaintiffs were entitled to the refund of the money paid by them over and above what the defendant could have realised and that the plaintiffs were entitled to all the reliefs claimed by them in the plaint as otherwise the provisions of the Usurious Loans Act, 1918, would be violated. The relevant provisions of the Usurious Loans Act are contained in sections 2 and 3, the latter of which, as amended by section 3 of the Punjab Relief of Indebtedness Act (Punjab Act VII of 1934) and Punjab .Relief of Indebtedness Amendment Act (Punjab Act XII of 1940), is reproduced for facility and reference‑ "3. (1) Notwithstanding anything in the Usury Laws Repeal Act, 1855, where, in any suit to which this Act applies, whether heard ex‑parte or otherwise, the Court has reason to believe,‑ (a) that the interest is excessive ; or (b) that the transaction was, as between the parties thereto, substantially unfair the Court shall exercise all or any of the following powers, namely, shall,‑ (i) re‑open the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest ; (ii) notwithstanding any agreement, purporting to close previous dealings and to create a new obligation, re‑open any account already taken between them and relieve the debtor of all liability in respect of any excessive interest, and if anything has been paid or allowed in account in respect of such liability, order the creditor to repay any sum which it considers to be repayable in respect thereof; (iii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to such extent as it may deem just Provided that, in the exercise of these powers, the Court shall not‑ . (i) re‑open any agreement purporting to close previous dealings and to create a new obligation. which has been entered into by the parties or any persons from whom they claim at a date more than twelve years from the date of the transaction ; (ii) do anything which affects any decree of a Court. Explanation.‑In the case of a suit brought on a series of transactions the expression 'the transaction' means, for the purposes of proviso (i), the first of such transactions. (2) (a) In this section 'excessive' means in excess of that which the Court deems to be reasonable having regard to the risk incurred as it appeared or must be taken to have appeared, to the creditor at the date of the loan. (b) In considering whether interest is excessive under this section, the Court shall take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premia, renewals, or any other charges, and if compound interest is charged, the periods at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction. (c) In considering the question of risk, the Court shall take into account the presence or absence of security and the value thereof, the financial condition of the debtor and the result of any previous transactions of the debtor, by way of loan, so far as the same were known, or must be taken to have been known, to the creditor. (d) In considering whether a transaction was substantially unfair, the Court shall take into account all circumstances materially affecting the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the loan so far as the same were known, or must be taken to have been known, to the creditor. (e) The Court shall deem interest to be excessive if it exceeds seven and‑a‑half per centum per annum simple interest or is more than two per centum over the bank rate, whichever is higher at the time of taking the loan, in the case of secured loans, or twelve and‑a‑half per centum per annum simple interest in the case of unsecured loans Provided that the Court shall not deem interest in excess of the above rates to be excessive if the loan has been advanced by the Imperial Bank of India or any bank included in the Second Schedule to the Reserve Bank of India Act, 1934, or any banking company registered under the Indian Compa nies Act, 1913, prior to the first day of April 1937, or any co‑operative society registered under the Co‑operative Societies Act, 1912. Explanation.‑Interest may of itself be sufficient evidence that the transaction was substantially unfair. (3) This section shall apply to any suit, whatever its form may be, if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security. (4) Nothing in this section shall affect the rights of any transferee for value who satisfies the Court that the transfer to him was bona fide, and that he had at the time of such transfer no notice of any fact which would have entitled the debtor as against the lender to relief under this section. For the purposes of this subsection, the word 'notice' shall have the same meaning as is ascribed to it in section 4 of the Transfer of Property Act, 1882. (5) Nothing in this section shall be construed as derogat ing from the existing powers or jurisdiction of any Court." Subsection (3) of section 2 defines the expression "suit to which this Act applies" as follows :‑ "(a) for the recovery of a loan made after the commence ment of this Act ; or (b) for the enforcement of any security taken or any agreement, whether by way of settlement of account or otherwise, made. after the commencement of this Act, in respect of any loan made either before or after the com mencement of this Act; or (c) for the redemption of any security given after the commencement of this Act in respect of any loan made either before or after the commencement of this Act." Sheikh Bashir Ahmad, the learned counsel for the respondent, urged that the suit brought by the plaintiffs did not fall within subsection (3) of section 2 of the Usurious Loans Act, 1918, and, therefore, section 3 of that Act could not be applicable. He contended that the suit was not one for the recovery of a loan because it was not a suit by a creditor but one by a debtor and, therefore, clause (a) of subsection (3) of section 2 of the Usurious Loans Act could not be invoked; that it was not a suit for the enforcement of any security taken on agreement and, therefore, clause (b) had no application and that it was not a suit for the redemption of any security in respect, of any loan and, therefore, clause (c) of subsection (3) of section 2 of the Usurious Loans Act had no application either. It is obvious that clauses (a) and (b) of subsection (3) of section 2 of the Usurious Loans Act, 1918, have no application, but the same cannot. be said of clause (c) of that subsection. The suit brought by the plaintiff company was in substance one for the redemption of the two motor vehicles which had been pledged as security with the defendant and seeing no bar to the appli cation of clause (c) of subsection (3) of section 2 of the Usurious Loans Act, 1918, to the facts of the case, I hold that the Usurious Loans Act, 1918 had application. The Usurious Loans Act, 1918, being applicable to the transaction between the parties, the question to consider is whether or not the interest is excessive or the transaction was as between the parties substantially unfair, because if either of those things is established the Court has by virtue of section 3 of that Act, wide powers to do substantial justice. between the parties. I have held already that the transaction was a loan and I have no hesitation in adding that the interest was excessive because it was at a higher rate than that allowed by section 3 of the Usurious Loans Act, 1918, as amended by the Punjab Relief of Indebtedness Amendment Act (Punjab Act XII of 1940). In reality, the two vehicles became the property of the plaintiff company on the 11th of July 1953. when the document, Exh. P‑1, was executed and were to be a sort of security for the payment of the loan and, therefore, by virtue of section 3 of the Usurious Loans Act, 1918, as amended, the respondent could not charge interest at a rate higher than seven and‑a‑half per cent. per annum. If nothing had been paid by the appellant to the respondent for full one year, the interest due on the whole amount of the loan would have come to Rs. 2,625 for the year at the rate of seven and a half per cent. per annum, but the respondent was to take Rs. 14,400 as interest for one year which would come to about fifty per cent, per annum if the fact that the principal amount H was diminishing every month is not lost sight of Moreover, it can hardly be doubted that the transaction was as between the parties unfair to the appellant company because for, in substance, borrowing a sum of Rs 35,000 it had to pay interest at an exorbitant rate simply because at the time when the transaction was entered into its circumstances were straitened As already mentioned, it was admitted by the learned counsel for the respondent at the hearing of the appeal that the respondent ha realised no less than Rs. 47,400 from the appellant at the time of the institution of the suit which meals that he had taken Rs. 12, 400 as interest, whereas he was entitled to no more than about one‑court of that sum. Oil a correct computation, much more than Rs. 7,404 had been overcharged by the respondent, but as the appellant has claimed only Rs. 7,204, it cannot be granted anything more than that. Consequently, I would accept the appeal. reverse the decree of the learned trial judge and decree the plaintiff's suit in its entirety with costs in both .the Courts. I need hardly add that if the respondent has realised any money from the appellant company after the institution of this suit, the company is entitled to the refund of that money. ORTCHESON, J.‑

I agree. A. H. Appeal accepted.