Capitalised bank interest in a running account is treated as discharged, not outstanding, for debt-relief purposes.

Under an ordinary banker-customer running account, yearly interest capitalised and carried forward as part of the balance was treated as paid and discharged, so it did not remain outstanding interest for relief under Section 8(1) of the Madras Agriculturists' Relief Act, 1938. The Explanation to Section 8 did not alter that position, because it preserved only principal originally advanced and later principal advances, not interest already discharged by the accounting method. Later debits could still be scaled down as advances under Section 9, and post-30 June 1934 interest remained reducible under the Act.

---

---

Issues: (i) Whether annual interest entered in a banker-customer running account and carried forward as part of the balance was to be treated as interest outstanding on the statutory date, or as interest already paid and discharged. (ii) Whether the Explanation to Section 8 of the Madras Agriculturists' Relief Act, 1938 altered that position and required the capitalised sums to be treated as unreduced interest.

Issue (i): Whether annual interest entered in a banker-customer running account and carried forward as part of the balance was to be treated as interest outstanding on the statutory date, or as interest already paid and discharged.

Analysis: The account was kept on the ordinary banker-customer basis in which yearly interest was added to the balance and thereafter treated as principal for the next year. In such a system, the interest is capitalised by the parties' settled mode of dealing and is treated as having been met by a corresponding advance, so that it ceases to remain outstanding as interest for the purpose of Section 8(1).

Conclusion: The annual interest up to 30 June 1934 was deemed to have been paid and discharged and was not outstanding interest liable to be wiped out under Section 8(1).

Issue (ii): Whether the Explanation to Section 8 of the Madras Agriculturists' Relief Act, 1938 altered that position and required the capitalised sums to be treated as unreduced interest.

Analysis: The Explanation applies where a debt is renewed or included in a fresh document, and preserves only the principal originally advanced together with subsequent principal advances. It did not displace the prior conclusion that capitalised yearly interest had already been discharged under the banker-customer method of account keeping, nor did it convert such discharged interest back into outstanding interest. The later debits could, however, be dealt with as advances and scaled down under Section 9, and interest on the balance after 30 June 1934 remained liable to be reduced in the manner indicated.

Conclusion: The Explanation did not alter the statutory treatment of the capitalised interest, though the later amounts were subject to scaling down under Section 9.

Final Conclusion: The decree was modified by excluding pre-1 October 1932 interest from scaling down as outstanding interest, while granting the appellants the benefit of reduction on the later debits and on post-settlement interest in accordance with the Act.

Ratio Decidendi: Where, under the ordinary banker-customer course of dealings, yearly interest is capitalised and carried forward as part of the principal, such interest is treated as paid and discharged and does not remain outstanding for the purpose of statutory debt relief, unless the statute clearly displaces that contractual and accounting effect.

---