Nona v. Enqal'hxnahamy
1969 Present : Alles, J., and Pandita-Gunawardene, J.S.P. NONA and another, Appellants, and H. ENGALTHINAHAMY,
S. G. 104(67 (Inly.)-D. C. Kurunegala, 1644/MB
Debt Conciliation Ordinance (Cap. SI)—Sections -JO (7) and 43 (1)—Debt secured by'mortgage of immovable properly—Settlement before Board—Default of paymentthereafter—Bight of mortgagee to institute hypothecary action then—Procedure.
Whci’O tho creditor and debtor in respect of a debt secured by a mortgage ofimmovable property enter into a settlement beforo the Debt ConciliationBoard whereby it is agreed inter alia that in case of any default the mortgagee isontitled to alt his legal rights including mortgagee’s remedies to sue and recoverin a court of law in a consolidated sum any amount duo on the settlement, it isopen to tlio mortgagee, if the mortgagor defaults in payment subsequently, toinstitute a hypothecary action under the provisions of Part II of the MortgageAct. In such a ease the Court has jurisdiction to entertain the hypothecaryaction without following the procedure laid down in section 43 of the DebtConciliation Ordinance. The Jaw grants a discretion to a creditor, in the ensoof n secured debt, to choose whether he should proceed under Section 43 or not.
Appeal from an order of the District Court, Kurunegala.
Lakshman- Kadirgamar, with P. N. Wikramanayake, for the defendants-appellants.
Felix R. Dias Banilaranaike, for the plaintiff-respondent.
Cur. udv. vult.
ALLES, J.—ATona v. Engallhinohamy
July 25,19G9. Aixes, J.—
On 21st January 1959, tho defendants executed Mortgage Bond No. 210whereby they bound themselves to pay the plaintiff a sum of Its. 1,250with interest at 12% per annum. As security for the said debt theymortgaged and hypothecated with the plaintiff as a primary mortgagethe premises described in the schedule to the bond. Having defaulted inthe payment of the principal and interest the parties effected a settlementbefore the Debt Conciliation Board under the provisions of the DebtConciliation Ordinance, No. 39 of 1941. The terms of the settlement were•entered on 11th May 1961 and have been produced as tho documentmarked ‘X’ 1. According to tho terms of the settlement it was agreed thaton 21st January 1965, the amount due to the plaintiff was Rs. 1,250 asoapital and Rs. 350 as interest. It was agreed that tho instalments•of principal and interest were to be paid annually by the defendantsfrom 1965 to 1968. Clauses 7 and 8 of the settlement read as follows :—
_(7)_ tkat_if the payments are made the creditor will discharge themortgage bond aud deliver it to the debtor with th<T title’deeds
(8) that in case of any default tho creditor is entitled to all. his legalrights including mortgagee’s remedies to suo and recover in acourt of law in a consolidated sum any amount due on thissettlement.
An instalment of the interest amounting to Rs. 350 being due beforethe last day of August 1965 and the defendants having defaulted in thispayment, the plaintiff instituted this action on the mortgage bond on5th October 1965. The defendants in. their answer filed on 4th June 1966stated that the proceedings adopted by the plaintiff were in contraventionof Section 43 (1) of the Debt Conciliation Ordinance. Nevertheless on24th September 1966 the case was settled and judgment was entered forthe plaintiff in a sum of Rs. 1,350 with costs fixed at Rs. 150 andlegal interest. Order to sell was not to issue for six months in the firstinstance and the Court entered a hypothecary decree. On 27th March1967 tho defendants filed petition and affidavit and moved that thoproceedings be declared void ab initio and. praj-ed for a dismissal ofthe action. The learned District Judge after inquiry made orderdismissing the application with costs and stated that tho judgment■creditor would be entitled to proceed with his writ after a properapplication to the Court. In tho Court below tho only question thatwas in issue was whether tho Court had jurisdiction and the learnedtrial Judge held that inasmuch as theconductof the defendants revealeda lack of bona fides it was not open to them to raise this issue. Thepresent appeal is from the interlocutory order made by the learned .District Judge and the execution of the decree has been stayed pendingthe disposal of this appeal.
Tho main contention of counsel for the defendants-appellants wasthat the Court acted without jurisdiction in entertaining the hypothecary-action without following the procedure laid down in Section 43 of tho Debt
ALICES, J.—Nona v. Engglthinchamy
Conciliation Ordinance. For the purposes of considering the submissionsof counsel it is necessary to reproduce Sections 40 (1) and 43 of thoOrdinance which read as follows :—
S. 40 (1). A settlement under Section 30 or Section 31 shall, when theoriginal and duplicate thereof have been counter-signed by theChairman and subject to an}' order the Board may make in respectof that settlement under Section 54, bo final between the parties andthe contract in respect of anjr debt dealt with in the settlement shallbecome merged in tho settlement :
Provided, however, that where any debt secured b}* any charge, lienor mortgago over any property, movable or immovable, is dealt within any settlement, the rights bf tho creditor under such charge, lien ormortgage shall, unless otherwise expressly provided in tho settlement,be deemed to subsist under the settlement to tho extent of the amountpayable thereunder in respect of such debt, until such amount lias beenpaid or tho property over which the charge, lion or mortgago wascreated has been sold for the satisfaction of such debt.
S. 43 (1). Where the debtor fails to comply with tho terms of anysettlement under this Ordinance, any creditor ?nay except in a casewhere a deed or instrument has been executed in accordance with theprovisions of Section 34 for tho purpose of giving effect to those termsof that settlement, apply to a court of competent jurisdiction, at anytime after tho expiry of three months from the date on which suchsettlement was countersigned by the Chairman of the Board, that acertified copy of such settlement be filet! in Court and that a decree boentered in his favour in terms of such settlement. The applicationshall bo by petition in the way of summary procedure and the partiesto the ‘.settlement, other than the petitioner, shall ho namedrespondents, and the petitioner shall aver in the petition that thedebtor has failed to comply with the terms of tho settlement.
(2) If the court is satisfied, after such inquiry as it may seemnecessary, that the petitioner is prima facie entitled to the decree inhis favour, the court shall enter a decree nisi in the petitioner’s favourin terms of the settlement. The court shall also appoint a date, noticeof which shall be served in the prescribed manner on the debtor, on orbefore which the debtor may show cause- as hereinafter providedagainst the decree nisi being made absolute.
The interpretation of these two Sections have been considered in tworecent judgments of this court—Samaras in yhe v. Bula-suriya 1 and SaudoonUmma v. Fernando 2.
In both eases, as in the present case, the debts were secured by ajnortgage of immovable property, fn the former case Sansoni, C.-T. heldthat the plaintiff had mistaken his remedy in suing on the mort«'a«e
1 (19GC) GO N. E. R. JO-5.
* (JOGS) 71 *V. L. It. 217.
ALLES, J.—Xona r. Engallhinrtham;/ '
bonds when, after the settlement, the right of action which tlie plaintiffwould hare had was not on the contracts contained in the mortgage bondwhich had become merged in the settlement. The learned Chief Justiceheld that the debt due from the defendant to the plaintiff became a newdebt, due not on the bonds but on the settlement, and that his remedy torecover his debt was under Section 43. In the latter case, after thesettlement, the creditor made an application to the District Court-praying for a decree to be entered in terms of the settlement- and alsopraying that a hypothecary decree be entered for Iho sale of the propertymortgaged to the creditor. The Chief Justice held that Section 43 of theDebt Conciliation Ordinance did not enable the District Court to enter ahypothecary decree and went on to hold further that a settlement, underthe Debt Conciliation Ordinance cannot confer jurisdiction on a Court,even b3r express provision to cuter hypothecary decree, which could onlybe maintained in conform it y with the special procedure laid down inPart II of the ?»Iortgagc Act. The learned Chief Justice in the course ofhis judgment in Satedoo)i- Umma v. Fernando had occasion to considerthe rights of a mortgagee in a ease where a settlement'has been effect edunder the Debt Conciliation Ordinance and in particular dealt with thoproviso to Section 40 (1) and made the following observations, with whichI am in respectful agreement :—
“ Tho language of the Section, in particular of its proviso shows thatthe creditor’s former right under the mortgage, i.e., the right of h3*pothecas distinct from the right to receive payment of tho debt, continues tosubsist under the settlement, even though the settlement may notexpressly so jwovide. The creditor thus retains his right over theproperty mortgaged to him as security for the payment of the debt-due under the settlement.. ”
In the present case under the proviso'to section 40 (1) not only was thestatutory right of the mortgagee preserved, but there is an expressprovision in the terms of settlement which entitled the creditor toinstitute a hj^pothecarj^ action. Learned Counsel for the appellant, whileconceding the right of the creditor to obtain a hypothecary decree overthe property originally mortgaged to him, maintained that such a rightwas only available after he had exhausted his remedy under Section 43of the Debt Conciliation Ordinance arid that therefore the trial Judgehad no jurisdiction to entertain the hypothecary action. I am unable toagree. The creditor is only entitled under Section 43 to obtain a decreenisi and the use of the permissive word * may * in Section 43 (1) grants hima discretion as to whether he chooses to exercise his rights under theSection or not. It may well be that in the case of an impecunious debtorthe creditor docs not consider it worth his while proceeding under Section43 of the Ordinance and thereby obtaining an empty decree, but prefersto seek satisfaction of his debt under the more profitable hypothecaryaction. In this connection, with respect, I am inclined to think that in(6) of tho opinion expressed by the learned Chief Justice in Saicdcon v.Fernando 71 N. L. R. at page 222 t he learned Chief Justice intended that
Town Council of Madampe v. Munasinghc
the words 'should apply’ should mean ‘is entitled to apply*. Indeed thelearned Judge earlier in the same judgment stated that under Section 43the creditor is only entitled to obtain a decree nisi.
In my view the law grants a discretion to a creditor in the case of asecured debt to choose, whether he should proceed under Section 43 ornot. Needless to say in the case of an unsecured debt the only remedyavailable to the creditor is that prescribed under Section 43 (1) of theOrdinance.
The creditor in this case was entitled to file a hypothecary action torecover the amount of his debt and his action is a properly constitutedone under the provisions of Part II of the Mortgage act. The appeal istherefore dismissed with costs.
Pandita-Gunawardene, J.—I agree.
S. P. NONA and another, Appellants, and H. ENGALTHINAHAMY, Respondent