G. JOHANAHAMY and 3 others, and K. W. SUSIRIPALA, Respondent

075-NLR-NLR-V-70-G.-JOHANAHAMY-and-3-others-and-K.-W.-SUSIRIPALA-Respondent.pdf


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MANTCAVASAG Aft, J.—Johanahamy v. Sasiripala
1967Present: Manicavasagar, J., and Samerawickrame, J.G. JOHANAHAMY and 3 others, and K. W. SUSIRIPALA, RespondentS. C. 461'64—D. G. Galle, 6708/L (N)
Debt Conciliation Ordinance, as amended by Act No. 5 of 1959—Sections 30, 40, 43,56, 64—Conditional transfer of immovable property—Limited extent to which itis deemed to be a “ mortgage ”—Evidence Ordinance, s. 92—Prevention ofFrauds Ordinance, s. 2.
A debt, in respect of which a conditional transfer of immovable propertyhad been executed, was subsequently the subject matter of proceedings beforethe Debt Conciliation Board. In a settlement which was arrived at, it wasagreed between the parties that the capital and interest due to the creditorshould be paid by the debtors on dates fixed in the settlement and that in theevent of a single default the right to redeem would be at an end. After thedebtors committed default in making payments, the creditor sued them in thepresent action claiming declaration of title to the land described in theconditional transfer. It was submitted on behalf of the defendants that theconditional transfer was in fact a mortgage retaining title in the debtors, thatthe proceedings before the Debt Conciliation Board were still pending andthat, therefore, the plaintiff was not entitled to maintain the action in view ofthe provisions of sections 43 and 56 of the Debt Conciliation Ordinance.
Held, that the action was maintainable. The amendment to the definitionof “ mortgage ” made by Act No. 5 of 1959 has not altered the law relating tothe creation of a mortgage over immovable property and has not recognizedas a mode of creating a mortgage the execution of a conditional transfer. Itmerely permits the Debt Conciliation Board to regard a conditional transferin certain circumstances as a mortgage for the purpose of exercising jurisdictionunder the Ordinance in respect of such a transaction. Accordingly, title tothe property which is the subject of a conditional transfer falling within thedefinition is in the transferee and is not retained by the debtor-transferor.
.A.PPEAL from an order of the District Court, Galle.
C. Ranganathan, Q.G., with N. Jayawickrema, for the defendants-appellants.
H. W. Jayevcardene, Q.C., with G. P. J. Kurukulasooriya and
Basnayake, for the plaintiff-respondent.
Cur. adv. vult.
December 3, 1967. Maxtcavasagar, J.—
I agree with the order made by my brother. The sole purpose of theamendment of 1959 is to enable a vendor, who has entered into anagreement to have the immovable property which he had sold reconveyedto him by the vendee, to seek the intervention of the Board to effect asettlement either in regard to the consideration payable by him onreconveyance, or extension of time, or any other matter which mayappear just and reasonable to the Board. Prior to the amendment.
SAMERAWICKJRAME, J.—Johanahamy v. Susiripala
329
the vendor did not have this remedy because an agreement to reconveywas not a contract of security in respect of a debt within the meaningof the Ordinance. The amendment, as my brother points out, did notcreate an exception, in respect of an execution of a mortgage, to theformalities imposed by Section 2 of the Prevention of Frauds Ordinance.
The question whether a matter is pending before the Board is one offact, dependent on the terms of settlement. The settlement effected bythe Board and contained in document PI concluded the matter beforethe Board, which was functus thereafter.
Samerawickrame, J.—
The plaintiff-respondent brought this action against the defendants-appellants for declaration of title to the land described in schedule B tothe plaint and for ejectment of the defendants from it.
It would appear that upon deed 2613 dated 11th January, 1958,the defendants-appellants and one Leelaratne transferred their interestsin the said land to the plaintiff-respondent subject to an agreement toreconvey the said interests on payment of a sum of Rs. 11,400 withintwo years from 11th January, 1958. The defendants-appellants and thesaid Leelaratne made an application to the Debt Conciliation Boardand in proceedings held upon that application a settlement was arrivedat between the plaintiff-respondent on the one hand and the defendants-appellants and Leelaratne on the other, whereby it was agreed that thearrears of interest due to the plaintiff-respondent and the capital amountdue to him should be paid on dates fixed in the settlement. The lasttwo paragraphs of the settlement were as follows :—
that in the event of any single default the right to redeem will be
at an end ;
that on payment of the full sum the creditor should execute a
deed of reconveyance to the debtors at the cost of the debtors.
Thereafter the Proctor for the plaintiff-respondent wrote a letter to theChairman of the Debt Conciliation Board stating that the debtors hadcommitted default in making payments and asked that the Board shouldmake an order dismissing the application made to it. By his letter (P. 3),the Chairman wrote to the Proctor for the plaintiff-respondent referringto clause 5 of the settlement and stating that an order dismissing theapplication was not necessary. The plaint iff-respondent thereafterfiled the present action against the defendants-appellants alone asLeelaratne had died and his interests had devolved on the defendants-appellants.
The defendants-appellants took up the position in their answer thatthe conditional transfer executed by them was in fact a mortgage, thatthe proceedings before the Debt Conciliation Board were pending at thetime the action was filed and that the plaintiff was not entitled, therefore,
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SAMERAWICKRAME, J–—Johanahamy v. Susiripala
to have and maintain the action in view of the provisions of Sections43 and 56 of the Debt Conciliation Ordinance.
At the trial, various issues were framed and the Court took up fordecision as preliminary issues the following :—
Is the plaintiff entitled to maintain this action in view of the
provisions of Sections 43 and 56 of the Debt Conciliation
Ordinance ?
Was the matter pending before the Debt Conciliation Board at the
time this action was instituted ?
If so, can the plaintiff have and maintain this action ?
The learned District Judge has answered these issues in favour of theplaintiff-respondent and the defendants-appellants have appealed againsthis order.
Mr. Ranganathan, Q.C., appearing for the defendants-appollants,submitted that the amendment to the Debt Conciliation Ordinancemade by Act No. 5 of 1959 had recognised the creation of a mortgageby the execution of a conditional transfer of land. He submitted,therefore, that the title to the land was at all times in the defendantsand that the plaintiff, therefore, could not maintain the action. Hefurther submitted that upon a settlement under Section 30 of the DebtConciliation Ordinance, the contract in respect of the debt was mergedin the settlement and that the mortgage or security created by theconditional transfer subsisted under the settlement to the extent ofthe amount payable under it in respect of the debt. He submitted thatthis was the effect of Section 40 of the Debt Conciliation Ordinance. Hefurther submitted that the plaintiff's only remedy was that given bySection 43 of the Ordinance.
It was held as far back as the year 1921 by the Privy Council in thecase of Adaicappa Chetty v. Caruppen Chetty 1 that Section 2 of thePrevention of Prauds Ordinance prevented the creation of a mortgageotherwise than by a notarial instrument duly executed according to law.It has also been held in a long line of cases that where a persontransferred land on a notarial deed, which on the face of it is a transfer,it is not open to the transferor to lead oral evidence to show that thetransaction was in fact a mortgage. The leading of such oral evidenceis directly prohibited by Section 92 of the Evidence Ordinance. Theprinciples laid down in these cases has been upheld by the Privy Councilin the case of Saverimuttu v. Thangavelautham2, and by a DivisionalBench of Five Judges of this Court in the case of William Fernando v.Cooray 3. Accordingly, if it had been the intention of the Legislatureto alter the law so as to permit the creation of a mortgage by an agreementother than one set out in an instrument which is notarially attested, onewould have expected that such alteration of law would have been doneby an unambiguous and substantive enactment. I find it difficult to1 {1921) 22 N. L. R. 417.* {1954) 55 N. L. R. 529.
8 (1957) 59 N. L. R. 169.
SAMERAWICKHAME, J.—Johanahaiay v. Susiripala,
331
think that the Legislature intended such a far-reaching alteration in thelaw by inserting a definition of the term 4 mortgage ’ in the DebtConciliation Ordinance by Amendment Act No. 5 of 1959.
That amendment provides for the insertion of the following definitionof mortgage in Section 64 of the Act which sets out the meanings to begiven to terms contained in the Ordinance “ unless the context otherwiserequires ”. The definition is as follows :—“ ‘ Mortgage ’, with referenceto any immovable property, includes any conditional transfer of suchproperty which, having regard to all the circumstances of the case, isin reality intended to be security for the repayment to the transfereeof a sum lent by him to the transferor ”. Inclusion of this definitionpermits the Debt Conciliation Board to regard a conditional transfer incertain circumstances as a mortgage and to exercise jurisdiction underthat Ordinance in respect of such a transaction. The Board would,therefore, be entitled to seek to effect a settlement between the transferorand the transferee in respect of the conditional transfer. The settlementwould obviously relate to the terms and conditions of payment uponwhich the transferor would be entitled to obtain a retransfer and wouldprovide for a transfer to be effected by the transferee upon the conditionsbeing satisfied. The settlement PI provides in clause 6 for such a transferbetween the transferee to the transferor upon the payment of the fullsum due under the settlement. In clause 5 it further provided that ifthere was default in any payment the right to redeem would be at an end.As the settlement itself provides that the right to redeem would be atan end, upon the debtors committing a default in payment, I do notsee that there can be any disability for the plaintiff to bring an actionupon the title that he obtained by the deed of transfer in his favour uponthe footing that there had been a default resulting in the right to redeemhaving come to an end.
Upon the view that I have taken that the amendment to the DebtConciliation Ordinance does not have the effect of enabling persons tocreate mortgage other than by notarially attested instruments and that,therefore, the transferee upon conditional transfer has the title, it isunnecessary to consider the elaborate argument put forward by Mr.Ranganathan upon the basis that the title remained in the debtors. Iam also of the view that, upon the assumption that a default in paymenthad been committed as alleged by the plaintiff-respondent, in terms ofclause 5 of the settlement, the right to redeem would have ceased to existand the Board could have no further jurisdiction to deal with any matterrelating to this transaction and that, therefore, the application in respectof it could not be said to have been pending thereafter.
I am, accordingly, of the view that the learned District Judge has cometo correct findings in respect of the preliminary issues and that his ordermust be affirmed. The case will now have to go back for trial in respectof the other issues. The plaintiff-respondent will be entitled to hiscosts of appeal.
Order affirmed.