Chatterji, J.This is an appeal by-defendant 1 in a suit which was brought on 7th August 1936, to enforce three simple mortgage bonds dated 18th August 1925,10th March 1929 and 14th December 1931, which were executed by defendant 1 for self and as guardian of his minor son defendant 2 for Rs. 8000, Rs. 5446 and Bs. 8351 respectively, carrying compound interest with yearly rests at 11 annas 3 pies per cent, per mensem on the second bond and 11 annas 6 pies per cent, per mensem on the other two bonds. The claim on the first mortgage was Rupees 20,376-6-9, on the second Rs. 10,110-11-0 and on the third Rs. 12,417-3-9. Defendant 2 attained majority before the institution of the suit. Defendant 3 was impleaded as a subsequent purchaser of a portion of the mortgaged property. The suit was contested by defendants 1 and 2 who filed separate written statements. The defence, so far as it is material to this appeal, was that the entire consideration of the mortgage bonds was not received and that the interest was excessive. The learned Subordinate Judge decreed the claim on the first mortgage in full, on the second for Rs. 9941 4-9 and on the third for Rs. 12,224-13-6. lie also allowed pendente lite interest from the date of the suit till the expiry of the period of grace at the bond rates with yearly rests. The first point taken on behalf of the appellant is that the entire consideration was not received, and this is confined to the second bond only. The consideration of his bond Ex. 3 (B) is made up as follows:

2. The first handnote Ex. 4(A) and the second handnote Ex. 4(B) both carried simple interest at 12 per cent, per annum, but at the time of execution of the mortgage bond Ex. 3(B) the dues on these two hand-notes were set off, calculating compound interest at 12 per cent, with yearly rests. The Subordinate Judge disallowed the compound interest, and reduced the amount of the dues on the handnotes accordingly. The handnotes were duly proved and were also supported by corresponding entries in the plaintiffs bahi khatas. Out of Rs. 1329, due on bahi khatas Ks. 1246-2-9 was principal on which simple interest at 12 per cent, amounted to Es. 82-13-3. The entries Exs. 6(I) to 6(z) 18 on the debit side of the plaintiffs bahi khatas show that the total advances made to defendant 1 amounted to Rs. 2592.2-9. The entries, Exs. 7(C) to 7(G) on the credit side show that the total payments made by defendant 1 amounted to rupees 1346. There was thus a balance of Rs. 1246.2.9 due from defendant 1. The defendant relies on the entries Exs. 7(z) 1 to 7(z) 8 on the credit side of the plaintiffs bahi khatas which show that defendant 1 made payments amounting to Rs. 3736-8-0 during the period from Pous 1,1333, (December 1925), to POUS 10, 1336, (December 1928). It is contended that the total sum of rupees 3736-8-0 covered by these entries should have been taken into account at the time of execution of the mortgage bond, Ex. 3(B) on 10th March 1929. But on the debit side of the plaintiffs bahi khatas there are various other entries Exs. B to B (54) showing advances to defendant 1 amounting to more than Rs. 4000 which were quite separate from those that formed the consideration of the mortgage bond Ex. 3(B). The plaintiffs evidence is that the accounts were adjusted before the defendant executed the mortgage bond Ex. 3(B). The defendant is an educated man of some position. He was a Municipal Commissioner for three years and a member of the District Board, Arrah, for eight or nine years. He was also the Vice-Chairman of the District Board for six or seven months and an Honorary Magistrate with second class powers for three years.

3. It is extremely difficult to believe that a man of his position would blindly execute the mortgage bond Ex. 3(B) without previous adjustment of accounts. Admittedly, he has got his own accounts but he did not produce them on the plea that they could not be found. In his written statement he did not specifically allege how much he actually received out of the consideration. He made the vague allegation with regard to all the bonds:

They advanced small amounts by instalments and after adding up interest and compound interest thereto and rendering incorrect accounts, got the bonds executed for larger amounts.

4. In the circumstances I have no hesitation in holding, in concurrence with the learned Subordinate Judge, that the bond Ex. 3(B) was for consideration. The next point taken is that in determining the actual amount of consideration of the second and third mortgage bonds no interest should have been allowed on the previous dues on bahi khatas. So far as the second mortgage bond Ex. 3(B) is concerned, I have already shown that the interest charged on the previous dues on bahi khatas amounted to Rs. 82-13-3 only. The consideration of the third mortgage bond Ex. 3(O) partly consisted of previous dues on bahi khatas amounting to Rs. 913-4-6 including interest. The learned Subordinate Judge reduced this amount to Rs. 888.9-6, calculating simple interest at 12 per cent, per annum on the actual advances. The defendant admits that he agreed to pay interest on the sums borrowed though he says that the rate of interest was 8 annas per cent, per annum on small sums below Rs. 100 and 4 annas per cent, per mensem on sums above Rs. 100.

5. The learned Subordinate Judge did not accept this evidence and allowed simple interest at 12 per cent, per annum. It is quite reasonable. The defendant had borrowed money from time to time and executed the mortgage bonds after adjustment of accounts and there is no reason why no interest should be charged on the previous dues on bahi khatas.

6. The next contention raised is that under the provisions of Section 7, Bihar Money-lenders Act (7 of 1939), the plaintiffs are not entitled to an amount of interest exceeding the principal sum advanced. This objection is confined to the first two bonds only. Section 7 runs as follows:

Notwithstanding anything to the contrary contained in any other law or in anything having the force of law or in any agreement, no Court shall, in any suit brought by a money-lender before or after the commencement of this Act in respect of a loan advanced before or after the commencement of this Act or in any appeal or proceedings in revision arising out of such suit, pass a decree for an amount of interest for the period preceding the institution of the suit, which together with any amount already realized as interest through the Court or otherwise, is greater than the amount of loan advanced, or if the loan is based on a document, the amount of loan mentioned in, or evidenced by such document.

7. It will be noticed that this section is expressly limited to interest payable up to the date of the institution of the suit. Interest payable after that date is left untouched.

8. The principal sum secured by the first mortgage bond Ex. 3 is Rs. 8000, but the Court below has passed a decree for Rs. 20,376-6.9, being the principal and interest due up to the date of the institution of the suit. Obviously u/s 7 the plaintiffs cannot get a decree for more than Rs. 16,000 as principal and interest due up to the date of the institution of the suit. The principal sum of Rs. 8000 includes Rs. 11-7-0 as interest charged on previous dues amounting to Rs. 480.9-0. Leaving aside this insignificant sum of Rs. 11-7-0, the principal sum secured by the first bond represents actual advances.

9. The second mortgage bond Ex. 3(B) is for Rupees 6556-0-0 out of which Rs. 125 was paid in cash and the rest was set off against previous dues, as already stated. Disallowing com-pound interest for the previous dues, the Court below reduced the principal sum to Rs. 5354-13-0 in respect of which it passed a decree for Rs. 9941-4-9 including interest up to the date of the institution of the suit This decree, therefore, is within the limit imposed by 3. 7, Money-lenders Act.

10. But it is contended on behalf of the appellant that according to Section 7 the amount of interest must be limited to the amount of loan actually advanced and not to the amount for which the mortgage bond was executed. The total amount of actual advances which formed the consideration of the second bond Ex. 3(B) was Rs. 4382-10-9, and it is, therefore, argued that the decree for Rs. 9941-4-9 exceeds the limit prescribed by Section 7. This contention is based upon the expression "the amount of loan advanced" used in the concluding portion of the section.

11. But this portion of the section makes it quite clear that two classes of cases are contemplated (1) loan advanced and (2) loan based on a document. If the section was meant to limit the amount of interest in all cases to "the amount of loan advanced," the subsequent words "or, if the loan is based on a document the amount of loan mentioned in or evidenced by such document" would be superfluous. The words "the loan" in the passage "if the loan is based on a document" mean with reference to the previous context the loan in respect of which the suit is brought and the word "loan" here must be understood as defined in Section 2, Clause (f). According to this definition

loan means an advance whether of money or in kind on interest made by a money-lender, and! shall include a transaction on a bond bearing interest executed in respect of past liability and any transaction which, in substance, is a loan.

12. Clearly, therefore, a bond executed for past liability constitutes a loan within the meaning of the Act. In the case of such a bond the amount for which it is executed is "the amount of loan" within the meaning of Section 7 of the Act. No doubt the expression "the amount of loan mentioned in, or evidenced by such document" may suggest that to determine the amount of loan one must not go behind the document. But it could never have been the intention of the Legislature, while enacting Section 7, to override the provisions of the Contract Act or the Evidence Act. Upon a proper construction of Section 7, it seems to me that the amount of loan in the second bond Ex. 3(B) must be taken to be Es. 5354-13-0, as found by the Court below.

13. Accordingly the decree passed by that Court does not offend against the provisions of Section 7. The view I take is in accord with the decision of this Court in Singheshwar Singh v. Medni Prasad Singh AIR 1940 Pat. 65 . It is in no way in conflict with the decision of the Federal Court in Surendra Prasad Narain v. Gajadhar Prasada 27 1940 F.C. 10, in which their Lordships had to deal with transactions on chithas. It was contended on behalf of the plaintiff before their Lordships that the amount entered in the last chitha should be taken to be the amount of loan within the meaning of Section 7, Money, lenders Act. But their Lordships held that the chitha could not be treated as a bond within the definition of loan in Section 2, Clause (f), Money-lenders Act. Accordingly their Lordships passed a decree only for the total amount of the loan advanced, because the amount repaid by way of interest exceeded the amount of the loan advanced. The next contention is that compound interest is excessive and should not have been allowed. It may be mentioned that the Bihar Moneylenders Act which was intended to afford relief to the debtors prohibits compound interest only on loans advanced after the commencement of the Act (Section 6). There is no such prohibition with regard to loans advanced before the commencement of the Act. Section 8 of the Act, however, gives a discretion to the Court, in case of loan advanced before the commencement of the Act, to

re-open the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any interest in excess of nine per centum simple per annum in the case of a secured loan and twelve per centum simple per annum in the case of an unsecured loan.

14. Section 8 does not lay down any conditions under which the Court may exercise its powers but gives a wide discretion. This discretion, however, cannot be exercised arbitrarily. As regards the first mortgage bond Ex. 3, the principal sum of Rs. 8000 represents actual advances except Rs. 11-7-0 only. The rate of interest is 11 annas 6 pies per cent, per mensem compoundable every year. This rate cannot be said to be excessive. There does not seem to be any reason for interfering with this rate u/s 8, Money-lenders Act. With regard to the second mortgage bond Ex. 3(B), the principal sum as determined by the Court below is RS. 5354-13-0 out of which Rs. 4382-10-9 is the total amount of actual advances, the remaining Rs. 972-2.3 being interest. Thus, a little less than one-fifth of the principal amount of the bond represents interest. This interest was calculated at 12 per cent, per annum simple. To allow compound interest on this bond will be rather harsh. It is, therefore, a fit case in which Section 8, Moneylenders Act, may be applied. I would accordingly allow simple interest at 9 per cent, per annum on the principal sum of Rs. 5354-13-0 from the date of the bond. The principal amount of the third bond Ex.3(0) is Rs. 8221-11-0, as found by the Court below. This amount is made up as follows:

15. The second handnote Ex. 4(D) 1 referred to in this account was not for cash consideration but was executed for previous dues on bahi khatas. The previous advances on bahi khatas amounted to Rs. 2324-5-3 which together with interest Rs. 220-10-9 came up to Rs. 2545 for which the handnote Ex. 4(D) 1 was executed. Thus, out of the principal sum of Rs. 8221-11-0 on the third mortgage bond Ex. 3(C), Rs. 1387-10-9 represents interest charged at 12 per cent, per annum on the previous advances. The bond carries compound interest at 11 annas 6 pies per cent, per mensem with yearly rests. This is also a fit case in which Section 8, Money-lenders Act, may be applied. I would accordingly allow simple interest at 9 per cent, per annum on the principal sum of Rupees 8221-11-0 from the date of the bond. The last contention on behalf of the appellant relates to interest pendente lite. The Court below allowed pendente lite interest at the contract rate on the total amount of principal and interest which was found due at the date of the institution of the suit.

16. It is contended that this interest should have been calculated on the principal sums secured by the mortgage bonds and not on the total amount that was found due at the date of the institution of the suit. Reliance is placed on Order 34, Rule 11, Civil P.C., which provides:

In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable the Court may order payment of interest to the mortgagee as follows, namely, (a) interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage (i) on the principal amount found or declared due on the mortgage, at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable....

17. This rule must be read with Order 34, Rules 2 and 4. Order 34, Rule 2 provides:

(1) In a suit for foreclosure, if the plaintiff succeeds, the Court, shall pass a preliminary decree--(a) Ordering that an account be taken of what was due to the plaintiff at the date of such decree for--(i) principal and interest on the mortgage....

This provision also applies to a preliminary decree for sale -which is dealt with in Order 34, Rule 4. It is, therefore, clear that the Court shall pass a preliminary decree for principal and interest due up to the date of that decree. The interest must be calculated at the contract rate unless the Court finds that such rate is penal or excessive.

18. This view was taken by their Lordships of the Privy Council in Jagannath Prasad Singh v. Suraj Mall 14 1927 P.C. 1. Their Lordships held that:

On a preliminary decree for foreclosure of sale under Order 34, Rules 2, 4, Civil P.C., (1908), a mortgagee is entitled to interest at the rate, and with the rests, stipulated in the mortgage down to the date fixed for redemption by the decree.

19. Order 34, Rule 11 gives a discretion to the Court to allow interest up to the date fixed for redemption under the preliminary decree and this interest is payable "on the principal amount found or declared due on the mortgage." This latter amount is obviously the amount found or declared due by the preliminary decree. Where the mortgage bond carries compound interest, the preliminary decree, according to the provisions of Order 34, Rule 2 and 4, shall allow compound interest from the date of the bond up to the date of that decree. The Court has no option to disallow interest at the contract rate up to the date of the preliminary decree, unless, of course, the rate of interest is found penal or excessive. For the period subsequent to the date of the preliminary decree, however, the Court has, under Order 34, Rule 11, the option either to allow or refuse interest. Now, as I am allowing simple interest on the last two bonds, the appellants objection with regard to pendente lite interest will prevail, so far as these two bonds are concerned. Simple interest at 9 per cent. Will be calculated from the date of each of these two bonds up to the date of this decree.

20. The position, however, with regard to the first bond is different. On this bond compound interest is being allowed. According to Section 7, Money-lenders Act, the total amount due for principal and interest up to the date of institution of the suit will be Rupees 16,000. Interest will be calculated on Rupees 16,000 from the date of the suit up to this date at the contract rate, that is to say, at 11 annas 6 pies per cent, per mensem compoundable at the end of every year.

21. On the authority of the decision of the Federal Court in AIR 1940 7 (Federal Court) , already cited, it is contended that pendente lite interest should be allowed on the principal sum only. In that case the contract rate was 12 per cent, compound interest with yearly rests. Their Lordships, in the circumstances of the case, applied Section 8, Money-lenders Act, and allowed simple interest at 12 per cent, per annum on the principal sum. But in this case, as I have already held, there is no reason for applying Section 8, so far as the first mortgage is concerned. In the circumstances, I would not allow any interest for the period of grace which I fix as three months from this day.

22. The result is that the appeal succeeds in part. The plaintiffs will get a mortgage decree (1) on the first mortgage bond, Ex. 3, for Rs. 16,000 including principal and interest up to the date of the institution of the suit together with further interest on that sum at 11 annas 6 pies per cent, per mensem compoundable at the end of every year from the date of the suit up to this date; (2) on the second mortgage bond, Ex. 3 (b), for Rs. 5354-13-0 principal with simple interest thereon at 9 per cent, per annum from the date of the bond up to this date; and (3) on the third mortgage bond, Ex. 3(c), for Bs. 8221-11-0 principal with simple interest thereon at 9 per cent, per annum from the date of the bond up to this date. The plaintiffs will get proportionate costs in the lower Court on the total amount found due on the three bonds at the date of the institution of the suit. Pleaders fee will be calculated according to the direction given by the Court below. So far as this Court is concerned, parties should bear their own costs. No interest will be payable from this date till the expiry of the period of grace. Thereafter the total amount of the decree including costs will carry future interest at 6 per cent, per annum till the date of realization. Let a fresh preliminary decree be prepared accordingly.

Meredith J.

I agree.