Amratlal Gordhandas Vs. Keshavlal Kuberdas Patel and ors. - Court Judgment

Marten, J.

1. This is an appeal from the judgment of the District Judge of Ahmedabad confirming the decision of the Subordinate Judge of Dholka dismissing the suit. The ground on which both the lower Courts decided this case against the plaintiff was, that the bargain sued on was an unconscionable one and obtained by undue influence and that the plaintiff had taken advantage of the borrowers' necessitous condition, and that accordingly it could not stand.

2. The document sued on, Ex. 15, was executed on January 8, 1917. Shortly stated, it gave the right to the plaintiff to obtain a commission of two and a half per cent on the gross income of a certain ginning factory in perpetuity. There were also provisions, binding the three borrowers not to remove the factory, but to get any future partners to enter into a similar agreement and that, in certain events, the properties of the factory would be liable for certain moneys, and that, in certain other contingencies, the lender would be at liberty to recover a certain amount from the machinery of the factory or from the borrowers, I should have stated that, shortly prior to this document, there was a promissory note, but the learned District Judge has found that the promissory note and the agreement for a commission effected by Exhibit 15 were all part of the original bargain for a loan. Defendant No. 1 was a party to this document but Defendants Nos. 2 and 3 were not parties.

3. It appears to us that the finding that the plaintiff exercised undue influence cannot be supported. The borrowers were not in needy circumstances in the ordinary meaning of that term. There is no evidence before us that they were being pressed by outside creditors, and at the most they wished to pay a retiring partner the amount of his share. Further, it is important to notice that the moneys were borrowed not so much for pressing needs as to build this factory, which they were under no obligation to build. Moreover, these three partners were all business-men and personally in a position to understand what was a fair bargain. There is no question here of some illiterate peasant being overborne by an intelligent schemer. Nor was there anything else in the relation between the parties which would put the plaintiff in a position to dominate the will of these three partners.

4. Then, it was argued that the bargain was so unconscionable that, for this reason alone, the Court should set it aside. Assuming for the sake of argument that the bargain was an unconscionable one, and that an agreement to pay commission in perpetuity is one which the Court would highly disapprove of, still the authorities governing the principles of relief in such cases fall far short of the very wide proposition which the defendants have urged before us. It is only necessary to refer to Sundar Koer v. Sham Krishen [1906] 34 Cal. 150 and Ganesh v. Vishnu [1907] 32 Bom. 37 to show that there are definite limits for the application of those principles. In Lalli v. Ram Prasad [1886] 9 All. 74 the Court had to deal with an illiterate and needy peasant proprietor. In Balakishan Das v. Madan Lal [1907] 29 All. 303 the borrower was the son of a wealthy father, who had stopped all supplies. The son, who was leading a loose life, was in real need of money and was determined to raise money at all costs. Those cases are quite different from the present one. On the facts before us, we hold, as a matter of law, that there was not sufficient evidence to justify the findings of undue influence in the Courts below and the relief granted on that basis.

5. But that does not dispose of the whole case. The agreement, Exhibit 15, should be read in toto to appreciate it. To my mind, it is a most extraordinary document and necessitates great caution before any Court can aid its enforcement. We have in the first place to see what the agreement actually amounts to. Beading it carefully, I think it amounts to an equitable charge on the property within the meaning of Section 100 of the Transfer of Property Act. Or again that it purports to create an interest in land within the meaning of Section 17 of the Indian Registration Act. I do not regard this document as a mere covenant to pay money. I think it intended that the lender should have some right on the actual factory itself and on the machinery in the factory and that the properties of the factory are to be liable, and that the factory is not to be removed and so on. Further, the commission itself is to be

on the gross income of the factory earned from the work which it will do as regards the separation of seeds from cotton and the binding of the bales.

6. In other words, this refers to the income, which this factory and its machinery standing on this particular land will produce.

7. If, then, the document purported to create an interest in land it would prima facie require registration, and as it was never registered, it could not be relied on. The same result follows, if it amounted to an equitable charge within the meaning of Section 100 of the Transfer of Property Act. That alone is sufficient to decide the case against the plaintiff.

8. We do not overlook the fact that there are other possible arguments that might be put forward to support the actual results arrived at in the Courts below. If, for instance, the document was a charge on land, then prima facie this provision for a commission would be a clog on the equity of redemption; for it was to be paid in perpetuity notwithstanding the repayment of the loan. I need not deal in any detail with the English authorities on the point. They are referred to in Halsbury's Laws of England, Volume XIII, paragraph 101, at page 91, where it is pointed out that this does not prevent the mortgagee from stipulating for a collateral advantage if it is limited to the duration of the security, and is not unfair to the mortgagor. Certain oases, such as Noakes & Co. Limited v. Rice [1902] A.C. 24 overruling Santley v. Wilde [1899] 2 Ch. 474 are cited, and the law on the point will further be found in G. and C. Kreglinyer v. New Patagonia Meat and Gold Storage Co. Limited [18899] 2 Ch. 474. In the present case, the factory was clearly part of the land, and the fixed machinery would also' be part of the land as being fixed to the freehold : (cf. Section 8 of the Transfer of Property Act).

9. There is yet another question as to whether this document is not void for perpetuity inasmuch as it creates certain interests in land the duration of which no man can fix. And it is possibly open to another objection, viz., that it is void for ambiguity seeing that, as years go on, the document will be impossible to enforce having regard to changes in the work of the factory and in the parties then carrying on business there. But we do not think it necessary to give any decision on this point, nor on the point whether there is any privity of contract which would enable the plaintiff to sue Defendant Nos. 2 and 3 who were not parties to the original document. We are content to base our decision on the Indian Registration Act and on Section 100 of the Transfer of Property Act.

10. In the result, therefore, though for quite different reasons, we arrive at the same result as was arrived at in the lower Courts. Accordingly, the appeal should be dismissed. And as it is clear that the whole loan has been repaid by the borrowers, and as, in our opinion, the document sued on is objectionable in character, we dismiss the appeal with costs.