Edupuganti Pitchayya and Others vs Gonuguntla Venkata Ranga Row

Wadsworth, J.—The appellants executed a mortgage on 27th September 1930 in favour of the respondent in respect of a cash advance of

Rs. 2500. The contract stipulated for nine yearly payments, each of a sum of Rs. 537-8-0. It did not state how this annual instalment was made up.

It also stipulated that if any instalment was overdue, it would carry compound interest with annual rests at Re. 1-9-0 per cent. per mensem. The

appellants applied to the lower Court under the rules framed under Madras Act 4 of 1938 for a declaration of the amount due. The lower Court

has come to the conclusion that by the terms of this contract no interest was payable except under the default clause and that the whole of the sum

repayable in instalments, namely, Rs. 4837-8-0 was the principal and no portion of it was liable to be cancelled under Act 4 of 1938. I am unable

to agree with this view. It is true that the. contract does not in terms say that each instalment shall represent so much interest and so much principal;

but undoubtedly the contract stipulates for an advance of Rs. 2500 against which repayments spread over a period of nine years shall be made

amounting to Rs. 4837-8-0. The excess over the original advance is certainly the compensation which the creditor gets for lending his money for

the particular period. The fact that it is not described in so many words as interest will not alter its character. Halsbury''s Laws of England, Vol. 23,

Section 253 defines interest as follows:

Interest when considered in relation to money denotes the return or consideration or compensation for the use or retention by one party of a sum

of money or other property belonging to another.

Undoubtedly the excess over Rs. 2500 repayable by the debtors in this case is the compensation to the creditor for the use of his money. The

definition of interest in the English Money-lenders'' Act, after excluding certain charges, says:

But save as aforesaid, interest includes any amount, by whatsoever name called, in excess of the ""principal paid or payable to a money-lender in

consideration of or otherwise in respect of a loan.

The word ''interest'' has a basic meaning of advantage or profit. When used with reference to ,a loan, interest means the profit or advantage of the

creditor which he gets by giving to another the use of his money. If the contract stipulates that for the use of the creditor''s money a certain profit

shall be payable to the creditor, that profit is interest, by whatever name it is called, or if it is called by no name at all. Applying Act 4 of 1938 to

the present contract it is clear that the principal is Rs. 2500. The only payment was an open payment of Rs. 150 made on 23rd July 1931. The

whole of the interest as on 1st October 1937 is cancelled and the creditor is entitled to Rs. 2350 with interest at 61/4 per cent. per annum from 1st

October 1937. The appellants are entitled to their costs here and in the Court below.