Marikar and Supramaniam. Chettiar.
Chettiar. This fact was not disclosed when the business name wasregistered. The evidence further establishes that the same firm wascarrying on business in Colombo. This particular too, was not disclosed.The provisions, therefore, of section 4 (1) (d)- of Cap. 120 have not beencomplied with. In the circumstances section 9 (1) of that Ordinancedebars the defendant from suing on note “ A ”—Subramaniampillai v.Wickremasekere, et al.' ; David v. de Silva'; Jamal Mohideen & Co. v.Meera Saibo, et alz. Proviso (c) of section 9 (1) cannot help the defendantbecause the words “ any other party ” apply only to third parties andnot to parties to the contract—Daniel v. Rogers *; Daniel v. Rogers5;Hawkins, et al. v. Duche ’ which is referred to in Fernando et al. v.Jayasingh e
Where it is apparent that in an accounting under section 2 of theMoney Lending Ordinance (Cap. 67) the money lender will be entitled tojudgment for any sum of money by virtue of a promissory note, nosum will be awarded to the lender where the promissory note is fictitiousunder section 14 of the Ordinance. Promissory note “ A ” does not statethe truth regarding the rate and nature of the interest charged. It doesnot set out the capital sum actually borrowed. Although in fact it wasa renewal of an old loan the amount of the original loan is not stated.There was a “ collateral transaction entered into with a view to dis-guising the amount ”. The provisions of sections 10, 13 and 14 of the Cap.67 are applicable, and the claim on note “A’’.should be dismissed. Thelearned District Judge has misapplied the ruling in Sockalingam Chettiar v.Ramanayake et als. In the present case there was no claim by thedefendant except the one based on the promissory note. There was noissue on a money count. There is a distinction between fictitiousnessunder section 10 and fictitiousness under sections 13 and 14—Wickreme-suriya v. Silva".
Accounting should have been ordered from 1920 and not merely fromJune 19, 1931, the date of note P 29. There is no period of limitation forreopening of money lending transactions. The proviso to section 3 ofCap. 67 is not applicable to the facts of this case. The words “ allowedin account ” should be read in conjunction with the terms of section 2.
H. V. Perera, K.C. (with him N. K. Choksy and R. A. Kannangara),for the defendant, respondent.—If there was any default regarding theregistration of defendant’s business name, the burden of proof was on theplaintiff. It cannot be said that at the time of the action the defendantand Letchumanan Chettiar were partners in the Puttalam business. Thebusiness carried on in Colombo by the defendant was not some otherkind of business, so that it was not necessary to mention about it in theregistration at Puttalam—rArunachalam Chettiar v. Ramanathan Chettiar10.
Proviso (c) of section 9 of the Business Names Ordinance (Cap. 120) isquite clear. The section prevents a defaulter from bringing an action ;but once he is brought into Court a claim in reconvention can be raisedby him. “ Any other party ” means any party other than the defaulter.
(1041) 42 N. L. R. 573. ..6 L. R. (1921) 3 K. B. 226 at 232.
(1933) 35 N. L. R. 201.7(1933)35~N.L. R. 231.
(1920) 22 N. L. R. 268.8(1936)32 N.L. R. 229.
• L. R. (1918)1 K. B. 149.8(1935)37 N.L. R. 274.
6 L. R. (1918) 2 K. B. 228.•»(1935)37 N.L. R. 263 "
Marikar and Supramaniam Chettiar.
It was contended that the District Judge could not have given judg-ment to the defendant for any sum found due to him on the transactionrepresented by promissory note “ A Assuming that the note wasfictitious it is submitted that section 2 of the Money Lending Ordinancegives the Court a new and what may be described as a paternal jurisdiction.The lender himself can ask for reopening of accounts. The Court has thesame powers whether the action is brought by the debtor or by the creditor.Under section 2 (1) (c) one of the grounds for reopening is that the notewas fictitious. See also Sockalingam Chettiar v. Ramanayake et al.'.
Coming now to the objections filed by the defendant, it is submittedthat the Court could not have reported transactions previous to note“ A ”. Promissory note “ A ” is not fictitious under section 14 of theMoney Lending Ordinance, nor does it contravene the provisions ofsection 10. There was no disguise either of the rate of interest or of theprincipal. The case of Abeydeera v. Ramanathan Chettiar3 is directlyapplicable to the facts of the present case. There was an extinction ofthe earlier obligations, and a new debt was created by note “ A ”. Thedefendant is entitled to claim payment of the principal and interest as onan account stated. As regards the meaning' of the expression “ renewalof loan ” and the applicability of section 10 of Cap. 67 see Siripina v.Somasunderam Chettiar3; Barber v. Mackrell ‘ ; Silva v. Somawathie ‘ ;Ramalingam Pillai v. Wimalaratne et al".
The District Judge should not have disallowed compound interest tothe defendant. There .is nothing illegal in capitalizing interest. InCeylon Compound interest may be recovered where there is agreementto pay it—Abeydeera v. Ramanathan Chettiar1; Ramasamy Pulle v. ThambyCandoeThe term “ interest ” in section 5 of Ordinance No. 5 of 1852(Cap. 66) should not be limited to simple interest only. Decisions statingthat compound interest is not permitted irr Ceylon do not take into con-sideration section 5 of Cap. 66. In South Africa an agreement to paycompound interest is not void unless the amount charged can be said tobe usurious, and the common law forbidding compound interest has to thisextent been abrogated by disuse—3 Bisset & Smith’s Digest of S. AfricanCase Law, p. 560. Further, section 97 of the Bills of Exchange Ordinance(Cap. 68) introduces the English law as regards promissory notes, and inEnglish law compound interest is allowed where there is express orimplied agreement.
There are ho circumstances which make the transaction harsh or un-conscionable. The rate of interest is not high. The charging ofcompound interest does not per se render a transaction harsh orunconscionable.
N. Nadarajah, K.C., in reply.'—Section 5 of Cap. 66 does not make legalwhat was illegal. It did not abrogate the Roman-Dutch law regardingcompound interest, Our courts have always held that compoundinterest is illegal. Even the case Of Ramasamy .Pulle v. Tamby Candoei{supra), when it is closely examined, is authority for this view. See
1 (1936) 38 N. L. R. 229 al 234.5(1929)31 N. L. R. 120.
• (1936) 38 N. L. R. 389.•(1935)35 N. L. R. 379.
3 (1936) 38 N. L. R. 83.7(1936)33 N. L. R. 389.
1 (1892) 68 L. T. 29.J(1872-75) ; Ram. 189.
HOWARD C.J.—Marikar and Sttpramaniam, Chettiar.413
also Vanderstraaten’s Rep. (1869-71) 57; Talpe Appuhami v. Baffamageyde Silva1; National Bank of India v. Stevenson'; Mudiyanse v. Vander-poorten ’; Muttiah v. Podisingho Appuhamy'; Velupillai v. Marikar *;Obeyesekere v. Fonseka ”. Under The Roman-Dutch law compoundinterest is illegal and contrary to public policy—Grotius III. c. 10(Herbert’s translation); Voet 22.1.5 and 20 (Horwood’s translation);Van der Keesel’s Theses (Lorenz’s translation) 172-4 ; Van der Linden1.3.1 -4 (Henry’s translation); Morice’s English and Roman-Dutch Law118; 3 Maasdorp’s Institutes 207 (1907 ed.) ; 2 Nathan’s Common Lawof S. Africa 607; Lees’ Introduction to Roman-Dutch Law 264 (1915 ed.).As regards the interpretation and applicability of section 97 of the Billsof Exchange Ordinance (Cap. 68) see Hongkong & Shanghai Bank v.Krishnapullai’; In re Gillepsie'; Ferguson v. FyffeEx parte Beven'°.The promissory note in.the present case does not expressly provide foror mention the charging- of compound interest. The transaction ofJanuary 13, 1936, was harsh and unconscionable. The Negombo Co-operative Society v. Don Manuel Ugo Mello et al"; Samuel et al. v.Newbold”.
Where a transaction is the renewal of an old loan the fact that it issuch ought to be set out in the promissory note—Temperance Loan Fund,Ltd. v. Rose et al“; B. S. Lyle, Ltd. v. Chappell11. The Court wasentitled to reopen previous transactions in the present case—B. S. Lyle,Ltd. v. Pearson & Medlycott “; Dunn Trust, Ltd. v. Feetham
August 25, 1943. Howard C.J.—
Cur. adv. vult.
In this case the plaintiff claimed, on the ground that they were harshand unconscionable and substantially unfair, under section 2 (2) of theMoney Lending Ordinance, the reopening of certain transactions, thetaking of an account between himself and the defendant the other partyto such transactions, the setting aside of a promissory note marked “ A ”dated January 13, 1936, made by the plaintiff in favour- of the defendantand the entering of judgment in his favour for any excess paid by himto the defendant. The defendant in reconvention claimed by virtue ofpromissory note marked “A” dated January 13, 1936, a sum ofRs. 52,948.70 together with interest thereon at 15 per cent, per annumamounting, less a sum of Rs. 1,050 paid by the plaintiff, to a sum ofRs. 70,541.05.
The District Judge of Puttalam decreed that the transactions betweenthe plaintiff and the defendant be reopened, but that such reopeningshould, by reason of the proviso to section 3 of the Ordinance, berestricted to those falling within a period of six years prior to the date ofthe action. The learned Judge further found that a sum of Rs. 29,672was due to the defendant from the plaintiff on June 19, 1941, and interestthereon and on subsequent loans to be calculated at the rate of 15 per
» (1882) 5 S. G. C. 16.
(tO 13) 16 N. L. R. 496.
» (1922) 23 N. L. R. 342.
(1930) 31 N. L. R. 333.
(1933) 2 C. L. W. 314.
(1934) 36 N. L. R. 334.
(1932) 33 N. L. R. 249 at 253.» L. R. 18 Q. B. D. 286 al 292.
s 8 Eng. Rep. 121.
10 32 Eng. Rep. 588.
“ (1934) 13 C. L. Rec. 141.
12 L. R. (1906) A. C. 461 at 466.'=> L. R. (1932) 2 K. B:522.w L. R. (1932) 1 K. B. 691.
>5 (1941) 3 A. E. R. 128.
18 L. R. (1936) 1 K. B. 22.
HOWARD C.J.—Marikar and Supramaniam. Chettiar.
cent, per annum up to MaTch 9, 1932. Interest was also to be paid fromMarch 10, 1932, up to the date of action, namely, March 10, 1938, atthe reduced rate of 10 per cent, per annum and from the date of actiontill payment in full at the rate of 9 per cent, per annum.
Both parties to this action have appealed against the judgment of theDistrict Judge. The plaintiff bases his appeal on the following.grounds: —
That the defendant- has made default in registering the particulars
required by section 4 (1) of the Business Names Ordinance(Cap. 120) and hence' his claim in reconvention was not maintain-able. In this connection it was contended that section 9 (1) (c)of the Business Names Registration Ordinance does not applyto the parties to the contract.
That note “A” was unenforceable inasmuch as (1) it failed to
set forth the particulars required by section 10 of the MoneyLending Ordinance (Cap. 67), and (2) it was by reason of theprovisions of section 14 of the said Ordinance fictitious.Plaintiff’s Counsel contended, therefore, that no accounting ofthe defendant’s claim should have been ordered. This claimshould have been dismissed.
That no account was stated on June 19, 1931, and hence the proviso
to section 3 of the Money Lending Ordinance was not applicablethereto.
The defendant, on the other hand, filed objections to the decree enteredin the District Court as follows : —
That the learned District Judge should not have disallowed com-pound interest to the defendant;
1 (b) That on or about January 13, 1936, the accounts between theparties were looked into and the plaintiff’s liability ascertainedand acknowledged by him at the sum of Rs. 52,948.70 wellknowing that compound interest would be charged. Promissorynote “ A ” was given as security for this sum and hencedefendant is entitled to claim payment of such sum and interestas on an account stated.
That the learned Judge was wrong in holding that the note “ A”did not comply with the provisions of the Money Lending.Ordinance and was not enforceable. I
I will deal first of all with the points raised by the plaintiff’s appeal.Document P 1 is a certified copy of the registration of the business name« -of the defendant as P. R. L. V. It is dated March 7, 1919, and registersthe name of the defendant only, the principal place of business beingat Puttalam. P 2 is a certified copy of the registration of the businessname of the defendant and Letchumanan Chettiar as P.R.L.V. Thisregistration is dated May 18, 1936, and registers both names, theprincipal place of business being at Colombo. P 3 is a document datedAugust 24, 1935, in which the defendant and Letchumanan Chettiar-describe themselves as carrying on business at Colombo and Puttalam.and hold themselves bound in a certain sum to the Mercantile Bank of
HOWARD C.J-—Marikar and Supramaniam CJiettiar.
India. P 4 is a power of attorney dated July 29, 1935, by which thesame two persons similarly described, appoint a certain person as attorneyto execute a mortgage in favour of the Mercantile Bank of India.Mr. Nadarajah also referred to documents P 7-P 14 to establish the factthat the defendant was not carrying on business alone as P.R.L.V. atPuttalam, but in partnership with Letchumanan Chettiar. It is con-tended on behalf of the plaintiff that these documents prove that onJanuary 13, 1936, the date on which the plaintiff signed note “ A ”,the defendant was carrying on business at Puttalam in partnership withLetchumanan Chettiar. This fact not being disclosed by the certificateof registration, P. 1, the defendant has made default in complying withthe provisions of section 4 (1) (d) of the Business Names Ordinance andbeing still in default his claim by way of reconvention is by reason ofsection 9 (1) of the Ordinance unenforceable. In my opinion the plaintiffhas not discharged the burden of proof imposed upon him of establishingthat on January 13, 1936, Letchumanan Chettiar was a partner withthe defendant in carrying on the Puttalam business. It was also con-tended that there was a further default under section 4 (1) (d) inasmuchas the business carried on at Colombo was not disclosed. In view of thedecision in Arunachalam Chettiar v. Ramana'than Chettiar there is nosubstance in this contention. The obligation to register- is in respect ofa different kind of business. The business carried on by the defendantat Colombo was not “ another business occupation ”. Even if thedefendant has made default in regard to the furnishing of the particularsrequired by the Ordinance, I am of opinion that there is another answer •to the contention put forward on behalf of the plaintiff. Section 9 of the'Ordinance is worded as follows : —
“ 9.(1) Where any firm or person required by this Ordinance to
furnish a statement of particulars or of any change in particulars inrespect of any business, shall have made default in so doing thenthe rights of that defaulter under or arising out of any contractin relation to that, business made or entered into by or on behalf ofsuch defaulter at any time while he is in default shall not be enforceableby action or other legal proceeding either in the business name orotherwise: —
Provided that—
the defaulter may apply to the'court for relief against thedisability imposed by this section, and the court, on beingsatisfied that the default was accidental, or due to inadvertanceor some other sufficient cause, or that on other grounds it i«just and equitable to grant relief, may grant such reliefeither generally, or as respects any particular contracts, oncondition of the costs of the application being paid by thedefaulter, unless the court otherwise orders, and on such otherconditions, if any, as the court may impose ; but such reliefshall not be granted except on such service and suchpublication of notice of the application as the court mayorder, nor shall relief be given in respect of any contract if:
1 {1935) 37 N: L. R. 263.
HOWARD C.J.—Marikar and Supramaniam Chettiar.
any party to the contract proves to the satisfaction of thecourt that, if the provisions of this Ordinance had beencomplied with, he would not have entered into the contract ;
nothing herein contained shall prejudice the rights of any other
parties as against the defaulter in respect of such contract asaforesaid;
if any action or proceedings shall be commenced by any other
party against the defaulter to enforce the rights of suchparty in respect of such contract, nothing herein containedshall preclude the defaulter from enforcing in that action orproceeding, by way of counterclaim set off or otherwise,such rights as he may have against that party in respect ofsuch contract.
In this section, ‘ court ’ means the court in which any action orother legal proceeding to enforce a contract is commenced by adefaulter.”
It is contended by Mr. Nadarajah that the words “any other party”in proviso (c) to sub-section (1) means “ third parties ” and exclude theparties to the contract. I am unable to accept this contention. If it isa correct interpretation of the law, the same interpretation must be givento the expression “ any other parties ” in proviso (b). This wouldresult in a party to a contract who is not a defaulter being denied hialegal remedy. In this connection I would refer to the judgment ofPickford L.J. in Daniel v. Rogers1. At page 232 the learned Judgein referring to the English Act ‘ said that he entertained considerabledoubt whether the Act of 1916 was ever intended to apply to the enforce-ment of a contract except as between the parties to it. This passagedefinitely rules out the limitation of “ any other party ” to “ third parties ”.I am, therefore, of opinion that the plaintiff, having commencedan action against .the . defendant, the latter, may, by reason ofproviso (c), even though a defaulter, enforce by way of reconvention hisclaim against the plaintiff in respect of note “ A ”.
I will now consider the questions raised by the plaintiff with regard tothe effect on his transactions with the defendant of sections 10, 13 and 14of the Money Lending Ordinance. The learned Judge has found that(1) note “A” failed to comply with the provisions of section 10 of theMoney Lending Ordinance and was unenforceable, (2) the amountmentioned therein as capital borrowed was false and fictitious to theknowledge of the defendant. Section 10 of the Money Lending Ordinanceis worded as follows : —
“10.(1) In every promissory note given as security for the loan
of money after the' commencement of this Ordinance, there shall beseparately and distinctly set forth upon the document—
the capital sum actually borrowed ;
the amount of any sum deducted or paid at or about the time
of the loan as interest, premium, or charges paid in advance ;and
* (19IS) 2 K. B. 228.
HOWARD C.J.—Marikar and Supramaniam Chcttiar.417
the rate of interest per centum per annum payable in respect ofsuch loan.
Any promissory note not complying with the provisions of thissection shall not be enforceable :
Provided that in any case in which the court shall be satisfied that thedefault was due to inadvertence and not to any intention to evade theprovisions of this section, it may give relief against the effect of thissub-section on such terms as it may deem just.
The setting forth of the particulars required by sub-section (1)shall not affect the negotiability of any promissory note.
Any promissory note setting forth tire said particulars sub-stantially in the form given in the Schedule shall be deemed to be incompliance with this section.
The provisions of this section shall apply to renewals of any loanand in all' such cases the amount stated as the capital sum actuallyborrowed shall be the amount of the original loan.”
In the margin of “ A ” we find that the amount borrowed is set outat Rs. 52,948.70 and the interest is Stated to be 15 per cent, per annum.In the body of the note the plaintiff acknowledges the borrowing ofRs. 52,948.70 which sum he promises to pay on demand with interestthereon at 14 per cent, per mensem. It is contended by Mr. Nadarajahthat note “ A ” was a promissory note within the meaning of section 10and the particulars prescribed by sub-section (1) should have been setforth upon the document. He further maintains that “A,” was a renewalof a previous loan. The sum of Rs. 52,948.70 set forth in “ A ” wasmade up of loans, interest on loans and other items, and therefore did notstate the capital sum actually borrowed which should have been the amountof the original loan. Moreover the actual transaction was one_for thepayment of compound interest. The statement “ interest at 15 percent, per annum ” did not reveal this. The first point that requireselucidation is whether note “A” was subject to the provisions of section10 or, in other words, whether it was “ a promissory note given as securityfor the loan of money”. It is contended by Mr. Per era that, although“ A ” is in form a promissory note and purports to be an acknowledgmentof money borrowed and received by the plaintiff and also to make com-pliance with sub-section (a), yet in fact it was nothing of the sort. Hemaintained that accounts were taken, that there was a discharge of itemson each side and a real account stated for which “A.” was given.In these circumstances the Court had no power -to reopen thetransactions previous to note “ A ”.
I agree with the finding of the learned Judge that an account was statedbetween the parties in June, 1931, when P 29, the first of the three notes,was given to secure the payment of the balance after certain adjustmentshad been made. These adjustments took place more than 6 years beforeaction brought, and, therefore, by virtue of the proviso to section 3, “ noreatfjustment ” of the account can be ordered in respect of this sum. ofRs. 27,672 which was allowed in account. A promissory note, P 29, wasgiven in respect* of this sum. Was this a note given “as securityfor the loan of money ” ? It certainly purported to be so inasmuch
HOWARD C.J.—Marikar and Supramaniam Chettiar.
as the word “ borrowed ” was employed. In Lyle, Ltd. v. Chappell *the facts were as follows :—On April 25, 1930, the appellants lent therespondent £150 at 15 per cent, interest for six months repayable bysix monthly instalments of £42 10s. each. The loan was secured by apromissory note under which, in default of any instalment, interestran on the instalment. At the end of six months only two instalmentshad been paid leaving owing £204 in respect of the unpaid instalmentsand interest thereon. On October 22, 1930, a settlement was effectedby the respondent signing a promissory note for £300, repayable by 60weekly instalments of £5 each and a memorandum agreeing to borrow£200 with the sum of £100 for interest upon the terms of the promissorynote. This memorandum concluded “ I hereby authorize and requestyou to allocate the whole of the above .advance of £200 in settlement ofmy promissory note in your favour dated April 25, 1930 ”. With regardto this transaction, Green L.J. on page 121, states as follows : —
“ There does not seem to me to have been any final agreement beforethe document was signed as to how the relief from the old debt whichhad been agreed to by the parties should be effected, and nothing hadhappened which would in any way prevent the parties fyom carryingout the suggested arrangement in whatever manner they were both■prepared to agree to. In my view, the document signed, by thedefendant, which appears on page 1 of the correspondence, is anagreement by him to discharge whatever was due on the promissorynote of April 25 by borrowing from the plaintiffs a sum of £200 andauthorizing them, instead cf physically handing over the money to thedefendant, to pay themselves the £200. The money lenders seemto have thought it necessary or desirable that they should physicallyhand, over a cheque for £200 to the defendant, and get it back again,but there is nothing in the agreement to the effect that this should-, bedone, and, in my judgment, it was not' essential that the agreementshould be carried out in that way. If the money to be borrowed wasintended to be used for the extinction of the debt agreed by the partiesat £200, it seems to. me unnecessary that the parties should-go throughthe idle form of passing the cheque backwards and forwards. Ifthe contract had provided for the borrowed money to be paid overto the defendant'and then repaid to the plaintiffs, it would, accordingto the authorities, have been unnecessary to go through the form ofhanding Over the money : see Credit Company v. Pott (6 Q.B.D. 295).”The following passage on page 122 is also relevant: —
“ In my judgment, the oral agreement made, as found by the learnedJudge, that the defendant should be relieved from his liability,could not be carried out by a renewal of .the old debt with a grant offurther time to pay it, plus additional interest. It could be carriedout only by some method whereby the old debt would be extinguishedand a new one created. The method of doing this was agreed by thedefendant with the plaintiffs when he signed the memorandum ofOctober 22.”- •'°
' IS Times L. It. 119.
HOWARD CJ.—Marikar and Supramaniam Chetiiar.
I would also refer to the following passage from the judgment ofScrutton L.J. on p. 120 : —
“In my opinion, when the time for payment of the original loan hasexpired without complete repayment and the time for repayment isextended on altered terms, there is a fresh loan, and it is sufficient ifthe memorandum of the altered terms precedes the commencementof the extended period. The draftsmanship of section 6 might bebetter, but I cannot think that Parliament intended to render renewalsimpossible.
As to the second point, I see no objection to the procedure of wipingoff the old loan by treating it as a new loan on the altered terms, whenthe fact that this is being done is shown on the face of the secondmemorandum. ”
The Court held that the trial Judge was wrong in holding that there wasno loan on October 22, that therefore there was no memorandum of thereal transaction and that the contract was not enforceable. A referencewas made to Lyle, Ltd. v. Chappell (supra) in the local case of Abeydeera v.Ramanathan Chettiar 1 in which the defendant gave three cheques to theplaintiff at various times to cover the value of goods sold and certainadvances made to him. Thereafter the cheques were returned and thepromissory note, which was the subject-matter of the action, was givenrepresenting the amount due upon an account stated between theparties. The Court constituted by Abrahams C.J. and Soertsz J. heldthat the note was given for a money-lending transaction although no moneyactually passed between the parties at the time the note was given. In hisjudgment Abrahams C.J. stated that the facts in Lyle, Ltd. v. Chappell(supra) “bear a substantial resemblance to the facts in this case”, arid,applying the principle laid down in that case, held t}iat there had been anotional lending and borrowing although no money had passed betweenthe parties. On the authority of these two cases, I have, therefore, cometo the conclusion that, although no money was lent by the defendantat the time when P 29 was signed by the plaintiff, there was a notionalborrowing and lending and P 29 was a promissory note given as securityfor the loan of money. Can, however, this principle of a notional conver-sion be carried still further and, as contended by Mr. Perera, be appliedto note “ A ” of June 13, 1936, which must be treated as a security for anew loan in settlement of the previous loan and so preclude the Courtfrom reopening the transaction in respect of which it was given With aview to discovering whether compliance has been made with the provisionsof :the Money Lending Ordinance ? In this connection the followingpassage from the headnote of Lyle, Ltd. v. Chappell'(supra) is of interest: —
“ Quaere, whether when an old debt purports to be settled by a newloan a statement to that effect must appear on the memorandum.”
The decision Lyle Ltd. v. Chappell (supra) was considered in TemperanceLoan Fund, Ltd. v. Rose & another" and in Lyle, Ltd. v. Pearson & Medly-cott ’. In the first of these cases the plaintiffs, who were registered moneylenders, lent the defendant Rose the sum of £200 by cheque dated January
2 {10?.2) 2 K. B. 522,
> 38 -V. L. R. 389.
(1911) A. E. R. Vo/. 3, p. 128.
420HOWARD C.J.—Marikar and Supramaniam Chettiar.
30, 1929, which was to be repaid, but the plaintiffs agreed to continueit on the terms stated in a memorandum dated July -30J 1929. In thismemorandum the borrower acknowledged he was indebted in the sumof £248 and agreed to pay interest at 48 per cent, per annum. Repay-ment of the said sum of principal and interest was to be by five conse-cutive monthly instalments of £8 each, the first instalment to be due andpayable on August 30, 1929, and the sum of £.208 on January 30, 1930.A promissory note for the sum of £248 was given by the borrower on thesame day for value received. The promissory note not having blen paidon January 30, 1930, the plaintiffs sued the two defendants thereon.The defendant Rose did not defend the action, but the other defendant,the surety, did so on the ground, inter alia, that the memorandum of thecontract did not show the date on which, the loan was made as requiredby section 6 (2) of the Act and was therefore unenforceable. In hisjudgment on pp. 528, 529, Scrutton L.J. stated as follows : —
“ On the facts I have stated the note or memorandum should showeither the date when the original cheque was given—namely, January30, 1929, or if the loan is to be treated as made not on that date buton July 30 by the transaction of paying off the old loan and startinga new loan it should show that date. It states neither date. It merelysay's that the borrower acknowledges ‘ that the above-mentionedsum of £200 is owing by the borrower’, and the reference to the dateof the loan is struck off. There is therefore no compliance with therequirement Of the Act that the date of the loan must be stated. Thememorandum does not, as was suggested in Lyle v. Chappell' mightbe done, set out the real facts—namely, that there was a loan of £200on January 30, 1929, which was to be repaid by a series of instalmentsby July 30, and a new loan made on different terms as to repayment,which new loan was made on July 30. The memorandum merelysays that the borrower is- indebted in the sum of £248. That is not acompliance with the statute. ”
In his judgment Greer L.J. referred to the contention of,Counsel who- appeared on behalf of the money lenders, that “ section 6 has no applica-tion to a case which is concerned with the payment of an admitted debt,even though that admitted debt happens to be the balance of a sum duefor money lent”. The learned Justice stated that, if this contentionwas right,/the plaintiffs would not be affected by the Act and be entitledto succeed. In holding that this contention failed, he further statedthat the language of the section is express that every contract whichcan be described as a contract for the repayment of money lent, and that.includes a promise to pay the balance of money previously lent, is broughtwithin the purview of the section. Further on in his judgment the sameJudge explained his judgment in Lyle v. Chappell (supra) and stated asfollows
“ In this case there was no evidence except the signature of thememorandum form, and we do not know whether it is an agreementin respect of the money which had been borrowed previously orwhether it is an Agreement for the repayment of money which was
1 [1032) 1 K. B. €91.
HOWARD C.J.—Marikar and Supramaniam Chet tiar.
notionally deemed to be lent at the time of the signature ; but if there•was no loan until the agreement was signed, it is impossible to saythat the contract was personally signed before the money was lent,and the statute requires that this shall be done. In my judgment■ he only way in which this statute can be complied with in dealingwith the renewal of the balance of an old loan is for the old loan to betreated as paid off- and a new loan granted. The memorandum mustbe signed before the notional loan of that kind is made, otherwises. 6 is not complied with. ”
It is of course clear that in this case the Court of Appeal held that, as thedate on which the loan was made did not appear .on the memorandum,the promissory note was unenforceable. It was also held that itwas not clear there was a new loan and hence the fact that there was arenewal of an old loan should be set out in the memorandum. Althoughthe wording of section 10 of our Ordinance is not the same as section 6of the English Act, the principle laid down by this case is applicable.
I am of opinion that note “ A ” should have set out the actual sum forwhich P 29 was given as security.
In the second case, Lyle, Ltd: v. Pearson & Medlycott (supra), theplaintiffs, registered money lenders, lent a borrower £100 on March 14,1939, on a joint promissory note of the borrower and a surety, the interestbeing 150 per cent, per annum. On June 13, 1939, a further £200 on thesame terms was borrowed. At some time prior to January 1, 1940, asum of £75 was repaid. On January 1, 1940, when £490 was owing inrespect of principal and interest the plaintiffs took a new promissorynote by the same parties, under which the latter agreed, to pay £490 withinterest at the rate of 25 per cent, per annum. It was contended thatthe Court had no power to reopen the transaction previous to the lastnote of January 1, 1940, which, being at a moderate rate of interest,could not be attacked. It was held by the Court of Appeal that the Courthad power under the Money Lenders Act, 1900, s. 1 (1) to reopen all thetransactions back to the first note of March 24, 1939. The judgmentof the Court was delivered by Goddard L.J. who, on pages 129-130,stated as follows : —
“ The reason why the money lenders entered into this last trans-action, in which the interest was at the seemingly exceedingly moderaterate of 25 per cent., was that they thought that they had found aloophole in the Money Lenders Act, 1900, by reason of the decision of .this Court in B. S. Lyle, Ltd. v. Castle ’, reported in the form of afootnote to Re. British Games, Ltd. If the plaintiffs and others oftheir fraternity think that that case affords the loophole, which theyseem to think they have found, the sooner they disabuse their mindsof it the better. The defendant in this case had put forward a counter-claim to have the whole of the transactions reopened, on the groundthat only £300 had in fact been lent, of which, as I say, £75 had beenrepaid, and that the interest charged on those loans was harsh andunconscionable, thereby making the third' transaction harsh and
> (1938) 158. L. T. 242.
2 (1938) Cl,. 240.
HOWARD C.J.—Marikar and Supramaniam Chettiar.
unconscionable. The judge took the view, on the authority of 3. S.Lyle, Ltd. v. Castle (supra) and B. S. Lyle, Ltd. v. Chappell (supra)that he could look at the last transaction' only, and, finding it a ioanof £490 with interest at 25 per cent., he came to the conclusion thatthere was nothing at all to show that the transaction was harsh or un-conscionable, ar.d, as the rate'charged was 48 per cent., if nothing elsecould be looked at, it was for the defendants to have attacked therate of interest, arid not for the plaintiffs to have supported it. .and,therefore, he gave judgment for the whole amount. In the opinionof tliis Court, this shows an entire misapprehension of the positionunder the Money Lenders Act, 1900, and we do not think that B. S.Lyle, Ltd. v. Castle decides anything of the nature which it is said thatit decides. In the first place, the decision in B. S. Lyle, Ltd. v. Chappell,is a clear authority in favour of the defendant, in this case, showingquite clearly—and, indeed, an inquiry had been ordered in that case—that, in a series of transactions of this sort, the Court can order thereopening of all the transactions which led up to the last transaction.
On page 131 the learned Lord Justice also referring to Lyle, Ltd. v.Chappell said as follows : —
“ It is not the least authority for the proposition which the judgeseems to have thought it was that the Money Lenders Act, 1900, can bedodged in this patent and almost shameless way, so that, having lentmoney at a harsh and unconscionable rate of interest, the moneylender can get out of any inconvenience and difficulties into whichthat may put him by entering into a transaction embodying all theprevious loans and interest in a new promissory note and chargingsome low rate of interest on that, and then suing the defendant uponit as soon as he has made default. The result is that this appealsucceeds. ”
Any doubts' about the' point at issue that may have arisen from thedecisions in Lyle, Ltd. v. Chappell (supra) and Temperance Loan Fund.Ltd. v. Rose (supra) are, in my opinion, removed by the judgment inLyle, Ltd. v. Pearson & Medlycott (supra). In view of this judgment,the contention put forward by Mr. Perera that, where an account hadbeen taken with regard to an old loan and a hew note had been given,the Court had no power to reopen the transaction previous to the lastnote, is clearly, untenable.. “ A ” was a renewal of a loan and hence theamount of the original loan should have been stated. In this connectionSiripina v. Somasunderam Chettiar1 has, in my opinion, no bearingon the fasts of this case inasmuch as in that case there was a new debtoron the second note who was jointly and severally liable with the debtoron the first note. With regard to what constitutes a renewal of a noteI would refer to Barber v. Mackrell' in which Lindley L.J. stated asfollows : —-
“ A bill is renewed when another bill is taken in its place, the partiesto the bill and amount of it being the same, though perhaps in somecases the interest due on the first bill is added. The bill which is
renewed is the old bill.”
■A", t. R. S3.
5 6S L. T. 29.
HOWARD C.J.—Marikar and Supratnaniam Chettiar.
A ” was constituted almost entirely by the old loan and interest. 1think there was a renewal and compliance not being' made with para, (a)of sub-section 1, the note by reason of sub-section 2 is not enforceable.The question as to whether it is also “ fictitious ” within the meaning ofsection 14 is a matter of some doubt and, in view of the fact that “ A-”is unenforceable by reason of section 10 (2), does not require an answer.Although “A” is unenforceable by reason of section 10 (2), an actionmay still be maintained to recover the loan, vide Sockalingam Chettiar v.Ramanayake' and Wickremesuriya v. Silva
Although the defendant’s claim in reconvention on “ A ” fails, Iagree with the learned Judge that there was sufficient evidence beforehim, both oral and documentary, to show that, when P 29 v/as executedan account was stated. The Court had, therefore, on the authority ofthe cases I have cited, jurisdiction to order an account to be taken andadjudge what was fairly due to him.
I will now consider the objections raised by the defendant. I havealready dealt with objection (c) and have come to the conclusion that thelearned Judge was correct in holding that “ A ” was unenforceable.With regard to objection (b), I have already held that, although accountswere looked into as between the plaintiff and defendant, “ A ” was amoney lending transaction and hence subject to the provisions of theMoney Lending Ordinance. The Court had, therefore, power to reopenthe transaction under section 2 of the Ordinance.
The only remaining point for consideration is whether the learnedJudge was correct in disallowing the claim of the defendant oh suchreopening for compound interest. It is contended by Counsel for theplaintiff fhat according to the law in force in Ceylon compound interestwas illegal. Such contention is, however, contrary to the decision inAheydeera v. Ramanathan Chettiar (supra). The following passage fromthe judgment of Abrahams C. J. deals with this point: —
“ I propose to say something presently on what I take to be the truenature of the transaction for which the promissory note was given,but for the moment, dealing with the question of compound interest,I am of the opinion that compound interest may be lawfully charged.The Money Lending Ordinance does not say that compound interestmay not be charged. The Only section in that Ordinance which hasany reference to interest is section 4 which provides that rates abovethe rates mentioned in it are matters to be considered when a transac-tion is under review for the purpose of ascertaining whether it is harshand unconscionable. Under the Roman-Dutch law, although' it is notlegal to charge compound interest, the South African Courts- haveallowed compound interest when there has been an undertaking topay such interest or where there is a recognized custom to chargecompound interest, or where the contract between the parties sanctionsit, unless the amount charged can be said to be usurious. (See ManfredNathan, Common Law of South Africa, Vol. II., pp. 667-670;) InRamasamy Pulle v. Tamby Candoe a, it was held that this. Dutch usury’ 3S -V. L. R. 829.* 37 -V- L. R. 274. ■
{1872-75) Ramanathan 189.
424HOWARD C.J.—Marikar and Supramaniam Chettiar.
laws were purely local enactments and were not introduced intoCeylon, Section 3 of Ordinance No. 5 of 1852, as amended by section 97of the Bills of Exchange Ordinance, No. 25 of 1927, enacts that noperson shall be prevented from recovering on any contract or engage-ment any amount of interest expressly reserved thereby, or fromrecovering interest at the rate of nine per cent, per annum on anycontract or engagement, in any case, in which interest is payable bylaw and no different rate of interest has been specially agreed uponbetween the parties, but the amount recoverable on account of interestor arrears of interest shall in no case exceed the principal ’. InNational Bank v. Stevenson1 compound interest was allowed by reasonof the custom of the banks and the acquiescence of the defendant.”
The question of compound interest was also considered in National Bank v.Stevenson (supra) in which it was held that a charge of compound interestwas maintainable as the rights of the parties in connection with thecurrent account were, in terms of Ordinance No. 22 of 1866, whichintroduced into the Island the English law of banks and banking governedby that law and not the Roman Dutch. It would also appear thatthe Roman-Dutch law prohibiting compound interest was not introducedinto South Africa, vide National Bank v. Kurunda ( (1907) T. H. 155—cited in 3rd Vol. Bisset & Smith’s Digest p. 560). We are asked tosay that the judgment of Abrahams C.J. above cited was not in accord-ance with the law and were referred to a number of cases in which it washeld that the matter was governed by Roman-Dutch law which prohibitedthe charge of compound interest. The first of these cases is reported inVander-Straaten’s Reports, 1869-1871, p. 57, where it is stated as follows : —
“ It is very clearly laid down by the Dutch Law authorities, ' thatinterest upon interest is not allowed, nor to be turned into principal,so as to increase the original debt ’ and ‘ that the amount of interestif in arrears may not exceed the principal’. Vander Linden, 219.Van Leeuwen, 34^ Grotius 326. Voet, 22.1.5 and 22.1.20.”
We have also been referred to the views of numerous text-book writersoh Roman-Dutch law on this point. The same view was taken inRamasamy Pulle v. Tamby Candoe (supra), Mudiyanse v. Vanderpoorten',Obeyesekere v. Fonseka3. With regard to these cases I-would observethat the aspect of Ordinance No. 5 of 1852 was not given considerationby the Judges in the Vander-Straaten case. Ramasamy Pulle v. TambyCandoe (supra) purported to follow, and, in my opinion mistakenlyfollowed, the Vander-Straaten case and is therefore not authoritative. Iam unable to accept the view held in Obeyesekere v. Fonseka (supra)which is not binding on us. In Mudiyanse v. Vanderpoorten, a claim forrepayment of money paid in respect of compound interest failed. Thejudgment as regards the legality of compound interest is obiter. In myopinion the question as to whether the Roman-Dutch lav/ prohibitingcompound interest was ever introduced into Ceylon or South Africa is amatter of some doubt. Even if it were, I am of opinion that by reasonof the provisions of the Civil Law Ordinance (Cap. 66), section 5, and the
116 -V. L. R. 496.,- 23 -V. L. It. 34".* 36 X. L. R. 334.
HOWARD C.J.—Marikar and Supramaniam Chettiar.42a
Bills. of Exchange Ordinance (Cap. 68), section 97 (2) it is no longeroperative. The first of these provisions is as follows : —
“ 5. Provided that no person shall be prevented from recoveringon any contract or engagement any amount of interest expresslyx'eserved thereby or from recovering interest at the rate of nine pevcentum per annum on any contract or engagement, in any case inwhich interest is payable by law and no different rate of interest hasbeen specially agreed upon between the parties, but the amountrecoverable on account of interest or arrears of interest shall in no caseexceed the principal.”
I agree that Abrahams C.J. was right in law in holding that this provisionwhich is a general one applying to interest on all contracts and engage-ments, including Bills of Exchange and promissory notes, sanctioned thepayment of compound interest if agreed upon by the parties. It will beobserved that section 5 provides that in no case shall the amount recover-able by way of interest exceed the principal. Bearing this m mind it isimpossible to conceive, that, if it had been intended to prohibit compoundinterest, it would not have been so stated. I am, moreover, of opinionthat section 97 (2) of the Bills of Exchange Ordinance applies to thequestion of interest payable on a promissory note the rules of the commonlaw of England, save in so far as such rules are inconsistent with the pro-vision of the Civil Law Ordinance to which I have referred. English lawapplied, therefore, to all matters connected with Bills of Exchange, pro-missory notes and cheques, similarly to all banking matters, vide Pereira J.in National Bank v. Stevenson (supra). The common law of Englandpermitted a charge of compound interest on a contract express, orimplied, vide Ferguson v. Fyffe1 and ex parte Bevan The learnedJudge was correct in holding that there was an implied agreement topay compound interest. In these circumstances such charge was not initself contrary to law. Although, however, the charge of counpoundinterest was not prohibited by law, the question of such a charge is amatter that demanded consideration on a reopening of the transactionsbetween the plaintiff and defendant under section 2 of the Money LendingOrdinance. In this connection I would refer to the case of Samuel v.Newbold the headnote – of which is as follows : —
“ The relief which the Money Lenders Act, 1900, extends to a borroweris not limited to cases in which before the Act the Court of Chancerywould have given relief.
The policy of the Act is to enable the Court to prevent oppression,leaving it in the discretion of the Court to weigh each case upon itsown merits and to look behind a class of contracts which peculiarlylend themselves to an abuse of power.”
The following passage from the judgment of Lord Loreburn L.C. atpage 467 indicates the manner in which Courts are to interpret the wordsthe transaction was harsh and unconscionable, or, as between the parties,thereto, substantially unfair ” : —
“ In my opinion this contention cannot be -maintained, nor oughta Court of Law to be alert in placing a restricted construction upon the
■ so. 121.* 32 E. R. SSS.3 (190G) A .C. 401.
HOWARD C.J.—Marikar and Supramaniam Chettiar.
language of a remedial Act. The section means exactly what itsays, namely, that- if there is evidence which satisfies the Court thatthe transaction is harsh and unconscionable, using those words in aplain and not in any way technical sense, the Court may reopen it,provided, of course, that the case meets the other condition required.
A transaction may fall within this description in many ways. It maydo so because of the borrower’s extreme necessity and helplessness, orbecause of the relation in which he stands to the lender, or because ofhis situation in other ways.- These are only illustrations, and, as inthe case of fraud, it is neither practicable nor expedient to attemptany exhaustive -definition. What the Court has to do in such circum-stances is, if satisfied , that the interest or charges are excessive, to seewhether in truth and fact and according to its sense of justice thetransaction was harsh and unconscionable. We are asked to saythat an excessive rate of interest could not be of itself evidence thatit was so. I do not accept that view. Excess of interest or chargesmay of itself be such evidence, and particularly if it be unexplained.If no justification be established, the presumption hardens into acertainty. It seems to me that the policy of this Act was to enable theCourt to prevent oppression, leaving it in the discretion of the Courtto weigh each case upon its own merits and to look behind aclass of contracts which . peculiarly lend themselves to an abuse ofpower.”,
In the present case taking into consideration the fact that compoundinterest, that is to 'say interest upon interest after rests every six monthswas payable, the rate charged in view of the provisions of section 4 (2)of the Ordinance must be deemed to be unreasonable. The returnto be received by the defendant was, therefore, for the purposes of section2 (1) (a) excessive, and the case meets what Lord Loreburn called “ theother conditions ”. In Samuel v. Newbold (supra) the Court was askedto say that an excessive rate of interest could not of itself be evidencethat the transaction was harsh and unconscionable, I.ord Loreburn,in the passage I have cited, expressly declined to accept this propositionand said that it was in the discretion of the Court to weigh each caseupon its own merits and to .look behind a class of contract's which pecu-liarly lend themselves to an abuse of power. In this'case the learnedJudge has .adopted this principle and I am not prepared to say that in re-opening'the transactions of 1936 and 1933 and disallowing the chargesof compound interest he has exercised his discretion otherwise thanin a legal and judicial manner. He was, however, in my opinion correctin holding that the proviso to section 3 bars the reopening of any accountat a date exceeding six years from the date of the application to the Courtunder section 2 (2), Hence the transaction of June 19, 1931, cannot bereopened. In these circumstances, the counter-objections, of the defend-ant, and what I have referred to as ground (c) of the plaintiffs’ appealfail.
In the result both the appeal of the plaintiff and the counter-objectionsof the defendant must be dismissed with costs.
SOERTSZ J.—Marikar and Supramaniam Ghettiar.427
The proceedings from which the appeal, and the cross-objections beforeus arise were commenced by the appellant under section 2 (2) of theMoney Lending Ordinance (Cap. 67) in order to have certain financialtransactions that had taken place between himself and the respondentreopened, and an account taken to enable him to recover such excesspayment as he might be found to have made to the defendant. Healso prayed that a promissory note granted by him to the defendanton January 13,1936, be set aside for the reasons stated in his plaint.
The appellant took the transactions back to 1931 in which year, healleged, the respondent’s then agent' represented .to him that a sum ofRs. 160,922 was due from him to the respondent and that be in view ofthat representation, “ acting on the advice of his Proctor ….agreed to settle the said sum by transfer of landed property to thedefendant to the value of Rs. 133,250 and in fact, did so ” (paragraph 3of the plaint) and “ for the alleged balance of Rs. 27,672 …. gavea promissory note dated June 19, 1931, on the assurance and adviceof his Proctor …. who acted for the defendant that the pro-missory note could be returned to him when the defendant who wasout of the Island returned and examined equitably the accounts andthe properties transferred and the fresh promissory note taken if any-thing was found to be due to the defendant ” (paragraph 4).
The appellant went on to aver that the respondent not having returnedto the Island his attorney “induced” him to give him a fresh promissorynote for Rs. 37,444.69 which the attorney said was the amount to whichthe sum of Rs. 27,762 of the first note had arisen as a result of the additionthereto of the amount of interest that had accrued at the rate stipulated,and a sum of Rs. 2,000 given by the respondent at the appellant’s requestto the Proctor already mentioned. Again, says the appellant, on June 13.1936, the same attorney " persuaded ” him to give him a fresh' promissorynote for Rs. 52,948.70 which he alleged was the sum resulting from theaddition to the amount of the second note of the interest that hadaccumulated in the interval, less several payments made by the appellantaggregating- to the sum of Rs. 3,885.12. The appellant also averredthat he signed the last note “ with the greatest reluctance ” and because:‘he had implicit faith in the defendant …. that the note
would be discharged …. and the accounts equitably lookedinto and a fresh note taken for the amount actually due if any ”(paragraph 8).■*
The respondent filed answer and alleged that's*' on or about June 19,1931, an account was stated, and a balance struck … . and a sum
of Rs. 160,922 was found to be due and owing from the plaintiff to him ”(paragraph (2) (b) and that property' to the value of Rs. 133,250 havingbeen transferred to him in part payment the promissory note datedJune 19, 1931, was given in respect of ..the balance outstanding (paragraph,2 (c) and (d). Similarly in regard to the two other notes, the respondentstated in paragraphs 3, 4 and 5! the circumstances in which they weremade and he averred that the making of the last note was preceded byan account stated between them.
SOERTSZ J.—Marikar and Supramaniam Chettiar.
On those allegations and averments he pleaded that there was nooccasion either in law or on the facts for reopening these transactionsand he counterclaimed the sum of Rs. 70,541.05 on the last promissorynote together with interest.
There was a replication in which the appellant pleaded inter alia thatthe respondent’s counterclaim was unenforceable by reason of therespondent’s failure to comply with the requirements of the BusinessNames Registration Ordinance (Cap. 120). .
The learned trial Judge found for the convincing reasons he gave inhis judgment that the three notes referred to in the plaint were notmade in the circumstances alleged by the appellant but that “ the partieslooked into accounts in June, 1931, that the plaintiff transferrd to thedefendant certain properties in part payment of the accumulated balance, . . . and gave the note P ‘29 (that in the first note of 1931) assecurity for the paymenf of the balance Rs. 27,672 ” ; that this amountwas “ wholly principal ’ and was due to the defendant. He thenexamined the transactions after the making of P 29 and reached theconclusion that inasmuch as the sum of Rs. 52,948.70 of the last of thethree notes included compound interest not agreed upon between theparties the appellant is entitled to have the transaction to which thelast note was related reopened. He also found that the amount ofRs. 52,948.70 including as it did interest that had accrued was incorrectlydescribed in the note as the capital sum borrowed and that for thatreason' it violated section 10 of the Money Lending Ordinance and wasunenforceable. The counterclaim therefore, failed.
But he found that there was sufficient evidence that there were transac-tions between the parties after the making of P 29 and that this was " acase where despite the fact that note A (the last of the notes) isunenforceable the court should in the exercise of its discretion and in theinterest of the defendant order the transaction embodied in that note tobe reopened arid an account taken.”
It will be observed that the trial Judge did not find that an accountwas stated as alleged in para. 5 of the answer at or about the time thelast note was given by the appellant. Indeed there was no evidence what-ever to support that allegation. This case must, therefore, be consideredby US on the basis that the only account stated took place in June, 1931.
In regard to the objection taken by the appellant under the BusinessNames Registration Ordinance the learned judge overruled it holdingthat assuming although not finding that the respondent had a partnerwhom he failed to disclose when he applied for registration of his businessname he was not debarred from making the counterclaim he set up invirtue of the.exemption afforded him by section 9 (1) (c) of the BusinessNames Registration Ordinance.
The appellant has appealed against the judgment and the respondenthas filed cross-objections to it and on the submissions made to us byCounsel appearing for the two parties the substantial questions thatarise for decision may I think, be formulated thus—
Has the respondent failed to comply with the requirements of theBusiness Names Registration Ordinance ?
SOERTSZ J.—Marikar and Supramaniam ghettiar.429
If so, is he precluded from making his counterclaim ?
Is he debarred from enforcing hiis counterclaim by section 10 of
the Money Lending Ordinance ?
Is the note on which the counterclaim is based fictitious within the
meaning of the section 14 of the Money Lending Ordinance ?
If it is, is the appellant entitled to have the counterclaim dismissed ?
If the note is neither fictitious nor obnoxious to section 10 of the
Money Lending Ordinance is the respondent entitled to judg-ment as prayed for by him ? Or has the Cour: the power toorder a reopening such as has been ordered ?
Is the charging of compound interest in the course of the transac-
tions between the appellant and the respondent illegal ?
If so, what is the consequence in lav/ ?
Is the amount charged as interest and included in the note on
which the counterclaim is made excessive and/or is the transac-tion represented by the note harsh or unconscionable or sub-stantially unfair ?
What order should be made in the result ?
On the first of these questions I am in agreement with the findingsof the trial Judge on the facts, and .1 share his view of the correct inter-pretation of section 9 (1) (c) of the Business Names Registration Ordinance.Indeed I do not think any other interpretation is reasonably possible.The words “ any other party ” set in contrast as they are with the word“ defaulter ” include both the other party to the contract and any thirdparty on whom the rights of the other contracting party may havedevolved and there does not appear to be any good reason for limitingthe words “ any other party ” to a third party only as Counsel for theappellant sought to do.
The answer to questions 1 and 2 is that assuming a failure to complywith the Ordinance the respondent is exempted from the ordinary con-sequences of such a failure by section 9 (1) (c) and he is not precludedfrom making his counterclaim.
In regard to question 3 it must be considered in the light of the findingby the trial judge on the evidence of the appellant-himself that an accountwas stated between him and the respondent in June, 1931, and that thefirst of the three notes P 29 was given to secure the 'payment of the balancedue by the appellant after certain adjustments had been made.
On the evidence it seems indisputable that the account stated in thisinstance was not a mere acknowledgment of a debt from which a promiseto pay the debt is implied but that it is what Blackburn J.' as he then wascalled “ a real account stated ” in Laycock v. Pickles1 or as known to theold law an “ insimul computassent Such an account stated arosewhen—in the words of Blackburn.J. “several items of claim are broughtinto account on either side and being set against one another a balance isstruck and the consideration for the payment of the balance is the dischargeof the items on each side. It is then the same as if each item was paidand a discharge given for each and in -consideration of thatdischarge the balance was agreed to be due “ It is not necessary/ inorder to make out a real account stated that the debt should be in praesenti
i 4 T> .f. df) 7
430SOERTSZ J.—Marikar and Supramaniam Chettiar.
or legal debts; the account may contain contingent or’equitable debts'oidebts barred by a statute of limitation or debts unenforceable by action’1.This was the view adopted by the Privy Council in the opinion deliveredin Siqueira v. Noronha'. A claim on such an account stated may faileither wholly or as to a particular item only on certain grounds, namely,that there was no. consideration or an illegal or immoral considerationor if on any other ground the defendant if he had actually paid theamount or the item in question could have recovered back the moneypaid. See Laycock v. Pickles (supra) and Evans & Co. v. Heathcote~.The appellant has not made out a case on any such ground and indeedhe was debarred from advancing such a case by the proviso to section 3of the Money Lending Ordinance which says “ that in any case in whichany amount claimed at any time to be due has been settled in accountno repayment or re-adjustment shall be ordered in respect of any sumpaid or allowed in account .exceeding six years before the date of applica-tion to the Court for relief ”. Here that, period was exceeded. Theaccount stated took place in . June, 1931, and the appellant’s applicationwas made in March, 1938. In the Indian Case of Firm Bishum Chand v,Seth Chirdari Lai3 Lord Wright in delivering the opinion of the PrivyCouncil pointed out that “ a real account stated ” “ may take place inrespect of a money lending transaction even though the borrower wasalways the debtor of the lender and never able to sue the other for ademand or claim ”. .In this. case there is- documentary evidence to showthat there were in the course of the dealings between the parties a fewtransactions other than money lending. The account stated in June, 1931,was in respect of all these transactions; and on a correct interpretationof the evidence in the case it is clear that if the promissory note P 29had been made so as to embody the true facts, it should have read, “ I. ‘I .. promise to pay . . .. Rs. 27,672 being the amount
found to be due on an account stated between us with interest there on at…. and- not as it has been drawn up to indicate the sum of
FiS. 27,672 as money borrowed. But in my opinion it is immaterial thatthe parties sought to aequiparate .the promissory note to one given tosecure a loan and, in that view of it, to comply with the requirements ofsection 10 of the Money Lending Ordinance for I think when we areconsidering v the applicability of section 10 we should be guided by thesubstance of the .transaction not by its form when there is evidence toshow what the real transaction was.
OnCe- the character of the promissory note is thus ascertained as thatof a note given to secure an amount due on an account stated the theoryof a notional loan advanced in the course’ of the argument is necessarily'excluded. A transaction cannot be a non-loan transaction in realityand a loan-transaction notionaliy any more than a thing can both beand not be. The fact that the occasion for the granting of P 29 was that ofan account stated renders inapplicable the case of Abeydeera v. Ramana-than Chettiar and the English cases referred to in that case and in thecourse of the argument.
The note P 29 not being a note given to secure a loan of money the secondand third notes which were given as security for the amounts to which1 (1934) A. C. 337.- (191S) I. K. B. 418.3 50 I. L. R. 463.
SOEBTSZ J.—Marikar and Supramaniam Chettiar.
/he sum covered by P 29 had risen by effluxion of time are not •* renewals ”of any loan. In this connection it is not without significance that theappellant himself described the later notes as fresh notes.
The conclusion to which I come in this way is that the promissorynote upon which the respondent makes his counterclaim is not un-enforceable within the the meaning of section 10 of the Money LendingOrdinance.
The next question relates to the fictitiousness of the note counterclaimedupon. The taint of fictitiousness is incurred under section 14 only in thecase of “ promissory notes given in respect of a loan ” and only if in regardto them—(a) “a reduction was made or a sum paid at or about the timeof the loan …. without such reduction of payment being setforth upon the documents …. ” or (b) “ at or about the time
of the loan …. any collateral transaction was entered intowith a view to disguising. .. the rates of interest payable in
respect thereof”. The promissory notes with which we are concerned,namely, P 29, P 30 and “ A ” were not given according to the case putforward by the appellant in respect of loans made at the time they weregiven nor was any sum paid or any reduction made nor any collateraltransaction entered into at or about the time the notes were grantedv/ith a view to disguising “ the actual amount of the sum advanced orthe interest payable in respect thereof’. The appellant’s casesimply stated is that a rate of interest other than that stipulated andshown on the notes has, in effect, been subsequently, debited against himin the books. It is not his case that at the time the notes were made hewas told that he would have to bear either compound interest or a higherrate of interest and that the rates appearing on the notes were insertedin order to disguise the real rate.
For these reasons I cannot see how any of these three notes could besaid to be fictitious.
The next question that arose before us was the much debated question,Is compound interest .illegal in Ceylon ? That is a question on whichI had already formed a view when I expressed my agreement with thejudgment of Sir Sidney Abrahams C.J., in the case of Abeydeera v.Ramanathan Chettiar1 and that view has only been confirmed by whatI heard in the course of the argument in this case. This question in my *opinion has been answered, for us by the legislature in Ordinance No. 5of 1852 (Cap. 66) and in the Bills of Exchange Ordinance (Cap. 68).Section 5 of the former of these Ordinances says—
“Provided that no person shall be prevented from recovering onany contract or engagement any amount by way of interest expressly 'reserved.,thereby or from recovering interest at the rate of 9 per cent,per annum on any contract or engagement in any …. irf which
interest is payable by law- and no different rate of interest has beenspecially agreed upon between tlie parties.”
This is a general provision and applies to interest on all contracts andengagements including Bills of Exchange and promissory notes.. Thecase now before us relates to a promissory note. In view of the admitted ’44 m1 3S .V. L. R. iso.
SOERTSZ J.—Marikar and Supramaniam Chettiar.
fact that accounts were rendered regularly in writing by the respondentto the appellant showing that from the date interest became payableafter P 29 was made compound interest was being consistently, chargedwithout any protest or question on the part of the appellant the inferenceis irresistible that subsequent to the granting of P 29 the parties hadspecially agreed to it. The words “ specially agreed ” do not in myopinion require that the agreement should,result'from written or spokenwords. It may result from a clear and unambiguous course of dealingsbetween the parties. The words “ specially agreed ”■ are not synonymouswith “ expressly reserved ” or “ expressly agreed ”. The words “ speciallyagreed ” are used to contrast a case in which there is expressed or impliedagreement in regard to the rate of interest with a case in which there beingno agreement whatever in regard to interest the law allows a rate of9 per cent, per annum. This view is supported by what Walter Pereira J.said in the course of his judgment in National Bank of India v. Stevenson ':“ But quite apart from the matter of custom (that is the custom ofBanks to charge compound interest of which evidence was tenderedin that case) which if proved would of course bind the defendant itseems to me that there is abundant evidence in the case to show thatthe defendant acquiesced in the charge of compound interest made bythe planitiffs and in the system of quarterly rates adopted by themand that hehce both these matters were to all intents and purposesinvolved in the agreement between the parties …. thedefendant never once raised any objection to it.”
It is clear from his judgment that the learned Judge treats that caseas one in which the evidence showed that the parties had by their courseof business specially agreed that compound interest was chargeable.Facts • could not have reproduced themselves with greater coincidencethan the facts of that 'case and of this have done in regard to the courseof dealings between the parties. If that interpretation is correct itmeans that any amount of interest however calculated whether byadding interest to interest or not and at any rate may be charged providedonly that if occasion arises to sue for the recovery of the debt the amountrecoverable as interest shall in no case, exceed the principal. The rulesagainst compound interest and against arrears of interest not exceedingthe capital sum are restrictions imposed by the Roman-Dutch UsuryLaws and it is significant that section 5 of Ordinance No. 5 of 1852 statesin the clearest possible terms that “ the amount recoverable on accountof interest or arrears of interest shall in no case exceed the principal butsays nothing in regard to compound interest as it surely would have doneif the intention of the legislature was to prohibit it.” In my view thissection sanctioned compound interest when it declared that subject tothe limitation just referred to any amount of interest expressly reservedor specially agreed upon may be recovered. I cannot read the words“rate, of interest” in the" phrase “and no different rate of interest hasbeen specially agreed ” as restricting chargeable interest to simple- interest and as prohibiting compound interest. As pointed out byCayley J. in his dissenting judgment holding against compound interest
1 16.N. L. R. alp. 499.
SOERTSZ J.—Marikar and Supramaniam Chelliar.
and against an unlimited rate of simple interest in the case of Ramasamy
Pulle v. Tamby Candoe ’, “ the restriction against compound interest
would be futile if the same result be obtained by recovering an exorbitant
rate of simple interest. For what protection would it be to a debtor
to disallow compound interest if he were allowed to stipulate in the
first instance to pay simple interest at the rate of cent per cent. ?”

If I may say so with respect, that observation appears to me to be asufficient refutation of the view taken by the two other Judges in thatcase that any rate of simple interest may be recovered but not compoundinterest. It exposes the incongruity of the two parts of that propositionthe effect of which is to interpret that section of the .Ordinance as givingwith one hand and taking away with the other for a money lenderconfronted with that proposition would hardly be in a dilemma. Hewould abandon any intention he may have had to charge compoundinterest, and 'by a simple arithmetical calculation determine the1 rate ofsimple interest that would yield the same result.'
But in regard to the question that was directly in issue in the case ofRamasamy Pulle v. Tamby Candoe I find myself in respectful agreementwith the opinion of the majority that any rate of interest may be recoveredby agreement. Section 5 of the Ordinance says so in so many words.The two views in proper combination appears to me to solve the problemand lead to the conclusion that the Legislature by means of this sectionabolished the Roman-Dutch Usury Laws against compound interest, andexcessive rates of simple interest but, in order not to leave the moneylender completely untrammelled, imposed a limit by providing that the-interest recoverable at law shall not exceed the principal.
The anonymous case cited to us from Vanderstraaten’s Reports dealtwith the question of compound interest charged on a bond executedin the year 1837 and probably for that reason there was no referenceat all to the Ordinance, 1852. The case cannot therefore be regarded asdoing more than reaffirming the well established rule of Roman-Dutchlaw against compound interest. The effect of the Ordinance, on that rulewas not considered.
The only other case cited to us that bears directly on this question is thatof Obeyesekere v. Fonseka' in which Dalton J. held that on a note givenby a debtor to his creditor for the amount of interest then due undertakingto pay a certain rate of interest thereon the creditor could not recoveranything more than the principal because he said to allow interest wouldamount to allowing interest upon interest. With all respect to thatlearned Judge I am unable to share his-view that because the note wasgiven to secure the interest due, the principal amount shown on the note-continued to be interest its identity unchanged. It seems to me that ifthat view is pursued to its logical conclusions, it leads tor untenableresults for it means, for instance, that if the debtor actually handed tothe creditor the interest due and borrowed it back promising to payinterest on it he will nevertheless .not be liable to pay interest. In other
2 36 N. L. S. 335.
*.(1875) Bamanathan's Report, p. 197.
434SOERTSZ J.—Marikar and. Supramaniam Chettiar.
words he will be entitled to an interest-free loan. That view is incon-sistent with that taken in Abeydeera v. Ramanathan Chettiar and in theEnglish cases referred to in that judgment, namely, that when a debtorin the position of the debtor in the case of Dalton J. finding himselfunable to pay the interest that had accrued gives his- creditor a promissorynote for the amount due, the resulting position is, on analysis, no otherthan a lending by the creditor and a borrowing by the debtor of theamount due—a notional loan as it has been called. Apart, however,from my respectful disagreement with the conclusion to which Dalton J.came in the view he took of the transaction in that case, for the reasonsI' have stated, I disagree with his ruling in regard to compound interest.The other cases cited to us Mudiyanse v. Vanderpoorten', Appuhami v.Theodoris Silva', Velupillai v. Marikar", deal with different questionsand are easily distinguishable. For these reasons, I reach the conclusionthat compound interest was legally chargeable in virtue of section 5 ofOrdinance No. 2 of 1852.
But, this case involving as it does a promissory note, I am of opinionthat compound interest was chargeable on it in virtue of section 97 of theBills of Exchange Ordinance (Cap. 68) as well. This section orrather its equivalent originally occurred in Ordinance No. 5 of 1852and in view of it .the dissenting Judge himself in the case of. Ramasamy v.Tamby Candoe held that Bills of Exchange and promissory notes stoodon a different footing and were exempted thereby from the English laws .of usury (at page 198). Section 97 (2) of Bills of Exchange Ordinanceprovided that: “ The rules of the Common Law of England including theMerchant Law in so far as they are not inconsistent with the expressprovisions of this Ordinance or any other Ordinance for the time beingin force shall apply to Bills of Exchange,- promissory notes and cheques.”What then is the meaning of the phrase “shall apply to”? In regardto that I am in respectful agreement with what Walter Pereira J. saidin interpreting section 2 of Ordinance No. 5 of 1852 which, at the date ofthat judgment, contained what is now enacted.' in section 97 of the Billsof Exchange Ordinance. He said “section 2 of Ordinance No. 5 of 1852introduced into this Island the lav/ (that is the English law) relating tobills of exchange, promissory notes and cheques, and in respect of allmatters connected vAth any such instruments The charging of interest isa matter connected with promissory notes. It follows that the Englishlaw applies, and the English law allows the charging of compoundinterest where, inter alia, parties have expressly or impliedly agreedthereto. The Roman-Dutch law rule which clearly forbade the chargingof compound interest was swept away and was replaced by the Englishlaw including the Merchant law so far as that law was not inconsistentwith the Bills of Exchange Ordinance itself or with any other Ordinancein force for the time being.
On this answer to question 3, it. would follow that, ordinarily, therespondent would have been entitled to Judgment on his counterclaimfor twice the amount of note P 29, once on account of principal and onceon account of recoverable interest. Similarly in regard to the sum ofRs. 2,000 paid by him at the instance of the appellant to his Proctor.
> S3 -V. L. It. 342.2 9 S. C.. C. 1C.2 2 C. L. W. 314.
KEUNEMAN J.—Marikar and Supramaniam Chettiar.435
But, there is the Money Lending Ordinance to be considered. Undersection 2 which is wide in scope, transactions are liable to be reopenedboth in cases brought for the recovery of money lent and in cases for theenforcement of any agreement of security made or taken after the MoneyLending Ordinance in respect of money lent either before or after theOrdinance.
The evidence in the case establishes that from 1920 the dealings betweenthe respondent and the appellant were, for much the greater part, byway of money lent by the former to the latter, and it appears to me,therefore, that although P 29 given after a real account stated—createda debt different from a debt due on a loan of money within the meaningof either section 10 or section 14, the words “ for the enforcement of anyagreement or security …. ; in respect of money lent either
before or after the commencement of the Ordinance ” enable the Courtto reopen the transactions in question in this case and take an accountunder section 2 (1) (a) and (b) subject, however, to the condition thatit may not order a repayment or readjustment of the account in respectof any sum paid or allowed in account at a date exceeding six years beforethe date of the application to the Court for relief (section 3, MoneyLending Ordinance). In this case there is an additional reason debarringan order for repayment or readjustment of anything paid or allowed onaccount before P 29 was made and that is the fact that P 29 follow'ed inan account stated.
For these reasons, I am of opinion that it was competent for thetrial Judge to make the order he has made for a reopening of trans-actions between the date of P 29 and that of the last note A. It iscompetent for the Judge to reopen the transactions and to take anaccount although the charging of compound interest, and the rate ofinterest charged are not illegal for under the Money Lending Ordinancethe question arises whether, in all the circumstances of a case, theinterest charged although not illegal, is excessive and whether, other-wise, the transactions are inequitable or harsh and unconscionable. . Thisanswer disposes of the other questions I formulated above as the questionsarising between the patties.
In the event the appeal and the cross-objections fail. In regard tocosts, I believe a fair order would be to direct the appellant to pay halfthe costs of the appeal and leave the order as to costs of all theproceedings in the Court below in the discretion of the District Judge.
Keuneman J.—
The plaintiff brought this action alleging that he had dealings withthe defendant for some years. He stated that defendant lent himmoneys, and that in the year 1931 the capital lent amounted to the sumof Rs. 53,000 odd, and the interest on the same to Rs. 107,000 odd, thetotal being Rs. 160,000 odd. In 1931 the plaintiff in point of facttransferred to the defendant property to . the value of Rs. 133,000 oddin liquidation of his liability, leaving a balance of Rs. 27,627, for whichplaintiff gave promissory note P 29 of June 19, 1931. Later, plaintiffsaid he was persuaded by defendant’s attorney to sign promissory noteP 30 of January 18, 1933, for Rs. 37,444.69 which in fact included the
436KEUNEMAN J.—Marikar and Supramaniam Chettiar.
capital sum of Rs. 27,672 on P 29, together with Rs. 2,000 paid bydefendant to Proctor Muttukumaru on behalf of plaintiff for professionalservices at the 1931 accounting, and Rs. 7,772.69- interest. A furtherpromissory note A was taken from plaintiff on January 13, 1936, madeup of the amount of P 30, viz., 37,444.69, and interest on it Rs. 19,389.13.the total of note A, being Rs. 56,833.82, less payment of Rs. 3,885.12 towit Rs. 52,948.70. The plaintiff alleged inter alia that compoundinterest had been charged on these notes. The plaintiff said that thesenotes were signed, on the undertaking that they would be duly dischargedand returned, to hirn and the accounts equitably looked into and a freshnote taken for the amount actually due, if any. The plaintiff prayedthat the Court do reopen the transactions and take an account betweenthe plaintiff and defendants under section 2 of the Money LendingOrdinance'(Cap.. 67) and set aside the promissory note A of 1936, and forjudgment against the defendant for any excess paid to the defendant.
The defendant filed answer praying for the dismissal of plkintiff'saction and in reconvention claimed judgment for the amount due onpromissory note A of 1936.
In his application, the plaintiff alleged that promissory note A wasfictitious within the meaning of section 10 of the Money Lending Ordi-"nance, and further stated that the defendant could not maintain hiscounterclaim, because he had failed to comply with the provisions of theRegistration of Business Names Ordinance (Cap. 120).
Several issues were framed to catch up the various matters arisingfrom the pleadings.
On the evidence the learned District Judge criticized the testimonytendered by the plaintiff, who at the trial stated what was not inaccordance with the pleadings. The District Judge rejected the plaintiff's-contention that there was an agreement to waive the amounts due on thethree promissory notes. Among other things, the plaintiff had takenover into his books the amounts shown in the defendant’s accounts whichhad been sent to him. I think, however, that in view of the absenceof any evidence on this matter on the part of the defendant, that it isdifficult to avoid the conclusion that some form, of protest was made bythe plaintiff on each occasion. At the worst, however, the only factproved as to the circumstances of these transactions after 1931 was thatthe plaintiff had signed each of the promissory notes. I do not think ithas been proved that there was anything in the nature of an accountsettled or stated, except as the District Judge has rightly held in respectof the 1931 settlement. In that case there was a real looking into accounts,and a settlement entered into with the assistance of the plaintiff’sproctor, and I further think that the District Judge was right in Holdingthat in 1931 the whole of the interest then outstanding was paid by theplaintiff to the defendant, and only the principal amount of Rs. 27,000odd jwas left unpaid, and was secured by the promissory • note P 29. TheDistrict Judge held that the 1931 settlement could, not be reopened inany event, because it took place more than six years before actionbrought, and was therefore prescribed»under section 3 of the MoneyLending Ordinance.
KEUNEMAN J.—■Marikar and Supramaniam Chettiar.437
As regards the later promissory notes, the District Judge held thatnote A, offended against the provisions c£ section 10 of the MonevLending Ordinance insomuch as the amount shown as capital is in-correct. The note A was accordingly unenforceable. As regards bothnote P 30, and note A, the District Judge holds that amounts of interestwere added to the capital sums due and compound interest was charged..In point of fact although each of these notes provided for simple interestat the rate of 15 per centum per annum, it had been the practice of thedefendant, to have half-yearly rests, and after each period of sixmonths, to charge interest on the amount then outstanding both asprincipal and interest The District Judge held that there was no agree-ment at any time for the payment of compound interest. Though theDistrict Judge does not specifically say so, I think it follows from hisjudgment that he also held that the interest actually charged was harshand unconscionable, or substantially unfair between the parties.
The District Judge further held that though note A was unenforceable,he should exercise his discretion in the interests of the defendant andorder that the transaction embodied in that note should be reopenedand an account taken.
As regards the objection based on the Registration of Business NamesOrdinance, the District Judge held, that it was competent for thedefendant to make a counterclaim under section 9 (1) (c).
From this judgment the plaintiff appeals, and the defendant has alsofiled counter-objections.
The appeal of the plaintiff referred to three matters. First he con-tended that in view of the fact tlje defendant was in default underthe Registration of Business Names Ordinance he was debarred frommaking any claim under note A, and that the only question the District ,Judge could decide was what amount if any had been paid in excess bythe plaintiff. The plaintiff also argued that under section 2 of the MoneyLending Ordinance, not only the note P 30 and A should be opened up,but also the 1931 arrangement represented by note P 29.
The question relating to registration of business names depends on theconstruction of section 9 (1) (c) of Cap. 120. (Registration of BusinessNames Ordinance)—–
viz., “ if any action or proceeding shall be commenced by anyother party against the defaulter to enforce the rights of such partyin respect of such contract, nothing herein contained shall preclude 'the defaulter from enforcing in that action or proceeding, by way ofcounterclaim, set off or otherwise, such right as he may have againstthat party in respect of such contract. ”
Counsel for the plaintiff argued that the words “ any other party, ”must be read in the sense “ any party other than a party to the contract ”.He referred to the fact that in proviso (a) of section 9 (1), the wordsparty to the contract ” appear, and contended that the word “ any,other party ” appearing in provisos (b) and (c) should be used as excludingparties to the contract. I do not think this argument is sound. Eachof the provisos (a), (b) and (c) are independent.of each other, and referback to section 9 (1), where the word “party” does not occur. Further-
KEUNEMAN J.—Marikar and Supramaniam Chettiar.
if provisos (b) and (c) are read independently, I think it is clear thewords “ any other party ” are used in contradistinction to “ the defaulterIf then the meaning is “ any party other than the defaulter ”, it wouldfollow that the words in question refer to a party to the contract. Itcan of course be argued that they also apply to those who are not partiesto the contract, e.g., assignees.
The cases cited by counsel for plaintiff, viz., Daniel v. Rogers'(obiter of Shearman J.) ; Daniel v. Rogers'; Hawkins v. Duche3 do notassist him. In fact I think these cases are against him. In my opinionit is clear that where there has been a default, it is the defaulter who isprecluded from commencing an action or other proceeding. Section 9 (2)seems to add emphasis to this point. But where proceedings are takenagainst the defaulter, by any other party, the defaulter is entitled toenforce his rights “ by counterclaim, set off or otherwise Furtherthere does not seem to be any reason why an assignee, for example, .should be placed in a worse position than the original party to the contract.
As regards the point that the 1931 transaction should also be opened upthe matter is governed by section 3 of the Money Lending Ordinance.Clearly in this case the amount of the note P 29 was “ settled in account ”,in 1931, and on that note the sum of Rs. 27,000 odd was “ allowed inaccount”. This took place more than 6 years before action brought—viz., before 1938. Therefore “no readjustment of the account” can beordered in respect of this item. Further this sum of Rs. 27,000 repre-sents principal alone, and is no way obnoxious to the Money LendingOrdinance. I hold that the finding of the District Judge was right onthis point.‘
One other jpoint in plaintiff’s appeal may be mentioned. He arguedthat in view of the fact that note “ A ” has been held to be fictitious,ho claim can be made in respect of the transaction disclosed in the note.The Privy Council in Sockalingam Chettiar v. Ramanayake' drew asharp distinction between the effect of sections 10 and 13 on the onehand and that of section 8 on the other (i.e., when the books of themoney lender are not kept in accordance with the terms of that section).Under section 8 the money lender is not “ entitled to enforce any claim ”.This would affect the whole transaction.. Under section 10 and section13 the claim is not affected. Their Lordships held that there was “noinconsistency between section 2 and section 10 ”, and although thepromissory notes in question were admitted in that case to be fictitious,the transaction itself, which was a mortgage, was unaffected. It washeld that “ the provisions of section 13 do not prevent the Court fromreopening the transaction and taking the account under section 2. ”. Thefictitious promissory notes were not however admissible in evidence to. prove the loan.
The plaintiff’s appeal therefore fails.
The counter-objections of the defendant remain for consideration. Atthe outset I think it is desirable to determine what attitude the law ofCeylon has adopted towards compound interest, as many matters inappeal depend upon that point.
-■ (1918) 1 K. B. 149.1 (1918) S K. B. 22S.
3 (1921) 3 K. B. 220.• 38 -V. L. R. 229.
KEUNEMAN J.—Marikar and Supramaniam Chettiar.
As regards the Roman-Dutch law, the matter seems abundantlyclear. As Nathan puts it in the Common Law of South Africa (2ndEdition) Vol. 2., Page 669, “ It is clear that, by Roman-Dutch law theinterest may not be turned into capital, upon which fresh interest is to becharged. In other words, the charging of compound interest is notlegal.” It is true that he adds that in South Africa the strict rule hasnot been applied. In fact the rule as regards compound interest in thatcountry may perhaps be regarded as abrogated by disuse.
The Roman Dutch authorities do not leave us in doubt, see Van DerLinden 1.3.4 (Henry’s transaction at 219), “That interest upon interestis not allowed, nor to be turned into principal, so as to increase theoriginal debt.” See also Grotius’ Introduction to Dutch Jurisprudence(Maasdorp’s translation, p. 235), “ It is, however, for good reasonsforbidden to cumulate unpaid interest with the capital, and thus stipulatefor compound interest, for people not seeing the consequences maythereby be entirely ruined.” See also Voet 22.1.20 (Horwood’s transla-tion, p. 22), “Similarly it is forbidden to claim interest upon interestor to turn interest again into capital (which is called anatocismus, compoundinterest). ” Voet explains here how far the rule is carried.
In fact as Maasdorp puts it there were in the Roman-Dutch law,“ two main rules …. viz., that compound interest is not allowedby our law, and that the amount of accumulated interest will in no casebe allowed to exceed the principal.” With the second rule we arenot immediately concerned. It is to be noted, however, that boththese rules are inherent in the law, and are not the creatures of statute.
Have these rules regarding compound interest been adopted in thisColony ? I do not think it is possible to have any doubt upon thatpoint. The earliest case which I have been able to trace was in 1870,where three Judges, who then constituted the Full Court, following theauthority of Van Der Linden, Van Leeuwen, Grotius and Voet, heldthat compound interest was prohibited. The case is reported in VanderStraaten’s Reports, page 57. This was a case where a father by deedpromised to pay to his minor children a sum of money with interest,on their coming of age, and further agreed to renew the bond every eightyears, adding the interest then due to the principal. The Supreme Courtheld that the bond so far as it related to compound interest was invalid,and that it was illegal to have added the interest to the principal, andto make the whole sum so increased bear interest. In 1875 there wasalso the important case of Ramasamy Pulle v. Tamby Cando<e, (Rama-nathan 1872 and 1875, 6, page 189). The majority of three Judges heldthat the Dutch usury laws relating to the rate of interest had not beenintroduced into Ceylon. But as Stewart J. said, “ A distinction,
…. may legitimately be drawn between the (Vander Straaten)
case and the present, the exaction of compound interest involving theinfraction of a principle of fixed and general Iawj whereas the questionbefore us is simply regarding a matter of detail relating merely to therate chargeable as interest.” All three Judges concurred in the viewthat compound interest was prohibited. As regards the rates of interest,it was further held that Ordinances, including section 3 of Ordinance No. 5of 1852 (now enacted as section 5 of Cap. 66) had in any event swept
KEUNEMAN J.—Marikar and Supramaniam Chettiar.
away the Roman-Dutch rules as to rates of interest. In view of theargument addressed to us, that this same section affected the questionof compound interest, which will be dealt with later, it is of importanceto note that all three Judges were satisfied that the Roman-Dutch rulesrelating to compound interest had not been abrogated. No doubtthis is obiter, but it is a weighty obiter. It was held that compound interestis illegal and cannot be recovered, even though expressly stipulated for.
These two cases were followed by a number of other cases, the referencesto which I may give, 16 N. L. R. 96 ; 23 N. L. R. 342; 2 C. L. W. 314 ;31 X. L. R. 333; 36 N. L. R. 334. Of these the case of National Bank ofIndia v. Stevenson' is interesting. Here the Roman Dutch prohibitionagainst compound interest was reaffirmed, but it was held that by Ordi-nance No. 22 of 1866 in all questions or issues which arise or which mayhave to be decided with respect to the law of banks and banking, thelaw to be administered is the same as would be administered in Englandin the like case at the corresponding peri6d. It was held that thekeeping of a current account between the bank and its customer camewithin the legitimate business of a banker, and that law governing therights and liabilities arising in connection therewith was the English law.It is of particular interest to note that section 3 of Ordinance. No. 5of 1852 (now section 5 of Cap, 66) was specifically referred to in theargument, but the only argument advanced was that that section restoredthe Roman Dutch prohibition against compound interest to transactionsotherwise governed by the English law,—an argument very far removedfrom that which we shall have to deal with later. The Judge did notagree with the argument then advanced.
There is, however, one case in which this current of authority hasbeen broken, viz., Abeydeera v. Ramanathan Chettiar This case appearsto hold that the Roman-Dutch rule against compound interest has eithernot been introduced into Ceylon, or has been superseded by section 3 ofOrdinance No, 5 of 1852, as amended by section 97 of the Bills of ExchangeOrdinance, No. 25 of 1927. The question of this section will be dealtwith later, but at any rate it is clear that the question whether theprohibition against compound interest was in force in Ceylon was decidedon the analogy of the South African law, and the Ceylon cases, with theexception of the case in Ramanathan, were apparently not referred to.I may poiht out that in South Africa, it was found that there were numerouscases in which compound interest had been allowed, and in Natal Bank v.Kurunda’ it was held that the old Roman-Dutch laws had been abrogatedby disuse. That case contains a citation from an earlier case, Seaville v.Colley ‘ as follows : —•
“ The presumption is that every one of these laws (i.e., the laws inforce at the date of the British occupation in 1806) if not repealedby. the local Legislature is" still in force. .The presumption will not,however, prevail in regard to any rule of law which is inconsistentwith South African usages. The best proof of such usages isfurnished by unoverruled judicial decisions. ”
1 16 N. L. JR. 496.3 Transvaal L. R. (1907) Pol. 6, p. 155.
– ~3S iY. L. R. 3S9. .*9 S.C. 39.
KEUNEMAN J.—Marikar and Supramaniam Chettiar.441
It is clear therefore that the usages in South Africa had taken adifferent turn, and had consistently allowed compound interest. InCeylon on the contrary there is a practically unbroken current of judicialauthority prohibiting compound interest.
It has been argued before us that the rules of the Roman-Dutch lawrelating to compound interest have been abrogated by section 5 ofCap. 66 (formerly section 3 of Ordinance No. 5 of 1852), which runsas follows : —
“Provided that no person shall be prevented from recovering onany contract or engagement any amount of interest expressly reservedthereby or from recovering interest at any rate of nine per centumper annum -on any contract or engagement, in any case in whichinterest is payable by law and no different rate of interest has beenspecially agreed upon between the parties, but the amount recoverablecn account of interest or arrears of interest shall in no case exceed theprincipal. ”
The further argument is put forward that this section was not consideredin the earlier cases. It is true that this section has not been speciallyreferred to in' the case reported in Vender Straaten’s Reports, and in anumber of cases which followed that case. But I am not prepared tosay that it was not considered. In fact this section played a great partin the determination of the case reported in Ramanathan’s Reports,and was utilized by the majority of the Court to help in the decision that,the Koman-Dutch rules as to the rates of interest had been superseded.But the Judges did not go further and apply the section to the questionof compound interest, which they held to be still governed by the Roman-Dutch law. I have referred to this as a weighty obiter. In the 16N. Li. R. case the present argument advanced was not put forward..On the contrary it was argued without success that this very sectionintroduced the Roman-Dutch rules of compound interest into matterswhich would otherwise have been governed by the English law. In thatcase the present argument would have been very relevant, and I thinkit is significant that it was not advanced. I do not think the learnedJudges who decided the other cases in question were unfamiliar with this,section. I do not, however, propose to place too much reliance on thefact that the present argument had not been advanced before the38 N. Li. R. case, although perhaps this does show that the argumentis open to doubt. It may- be noted in this connection that section 5 isheaded “ Legal rate of interest ”. I have myself carefully consideredthe argument now advanced, and I cannot agree with it, for the followingreasons : —
(1) The language of the section is not sufficiently precise and definiteto have the effect of repealing the rules against compound interest.Where the Legislature desired to permit the adding together of principaland interest, and to allow interest to be paid on the aggregate, it.hasused very specific language. Compare, for instance, section 192 of theCivil Procedure Code, which gives to the Court the power to add togetherthe amounts of principal and interest up to the date of decree, and toallow further interest on.the “aggregate sum so adjudged”. Whether
442KEUNEMAN J.—Marikar and Supramdniam Chettiar.
this will be regarded as compound interest or not under the Roman-Dutch law, it is unnecessary to consider, for the reason that theOrdinance has permitted it in precise language.
The word “ interest ” in the section must, I think, be interpretedas simple interest, and not as including compound interest. It will benoticed that the word “ interest ” occurs twice in the same section.On the second occasion, in relation to interest not specially agreed upon,the interest at the rate of nine per cent, per annum indubitably refersto simple interest. Was the word “ interest ” used in a different senseon the earlier occasion ? I think not. Nor do I think the word “ amountof interest ” as compared with “ rate of interest ”, makes such a funda-mental difference as to necessitate one giving that phrase a differentmeaning.
The Roman-Dutch rule relating to compound interest has a doubleaspect. It forbids (a) the charging of interest upon interest and (b) theturning of interest into principal so that further interest may be leviedupon it as principal. There is nothing in the section which we areconsidering which has any bearing upon this second aspect, and no wordsin the section can be regarded as permitting the turning of interest intoprincipal. If it had been intended by the Legislature to abrogate therules relating to compound interest, one would naturally have expecteda clear reference to this matter, and in the absence of reference to thismatter, I conclude that the Legislature did not intend to deal with thequestion of compound interest.
In the present case the actual notes only provide for 15 per cent,interest, i.e., simple interest. What is objected to is that at variouspoints of time, interest on these notes, has been converted into principal,so as to carry further interest, and in respect of note P 30 and note A,It is clear that accrued interest so calculated, has been converted intoprincipal. The section does not make this legal and/it is prohibited under•our law. I think that the notes are bad in that respect. ,
1 may in passing here point out that the reaffirmation in the sectionof the Roman-Dutch rule that the amount of interest recovered shouldnet exceed the principal was necessary, because the language of thesection (“…. no person shall be prevented from recovering…. any amount of interest expressly reserved …. ”)
may have been regarded as abrogating that rule in the Roman-Dutchlaw. It is to be noted, however, that the rule of the Roman-Dutch lawagainst recovering as interest more than the amount of the principal isapplied to cases which come under the English law as well, I do notthink any argument can be based upon this to the effect that the ruleagainst compound interest was impliedly abrogated. There was nonecessity on the words of the section to refer to compound interest,which in my view was untouched by the words of the section.
For these reasons I have come to the conclusion that section 5 ofCap. 66 does not have the effect of repealing the Roman-Dutch lawforbidding compound interest.
One further argument has been pressed before us, viz., that section:y7 (2) of the Bills of Exchange' Ordinance (Cap. 68), has brought in the
KEUNEMAN J.—Marikar and Supramaniam- Chettiar.
English law relating to compound interest, and has superseded theRoman-Dutch law, in the case of Bills of Exchange, Cheques and Pror.is-sory notes.
Section 97 (2) runs as follows :
“ The rules of the common lav/ of England, including the law-merchant, save in so far as they are inconsistent with the expressprovisions of this Ordinance, or any other Ordinance for the timebeing in force, shall apply to bills of exchange, promissory notes, andcheques. ”
With regard to the history of this matter, Ordinance No. 5 of 1252,.section 2 enacted that,
“The law to be hereafter administered in this Colony in respect ofall contracts and questions arising within the same upon or relating tobills of exchange, promissory notes and cheques, and in respect of all'matters connected with any such instruments, shall be the same inrespect of the said matters as would be administered in England in
the like case at the corresponding period”.
Under this section our law followed all the changes in the Englishlaw, in relation to these matters, until 1927. In that year, OrdinanceNo. 25 of 1927 was passed, whereby the law in Ceylon relating to Bills ofExcHange, Cheques and Promissory Notes was codified, and section 2 ofOrdinance No. 5 of 1852 was repealed by section 97 (3) of that Ordinance.But in section 98 (2) the section now appearing as section 97 (2) of Cap. 68was enacted. It is interesting to note that this last section was takendirectly from section 97 (2) of the Bills of Exchange Act, 1882, the chiefdifference being that our section refers to the common law of England,and the English section merely to the common law.
Now this section was necessary in England for the purpose of preservingthose matters peculiarly relating to Bills of Exchange, Cheques andPromissory Notes, on which the Bills of Exchange Act was silent ornot sufficiently explicit. As Lindley L.J. said in re Gillespie ex parteRobarts' “ Section 97 has been added to meet cases not exhaustivelydealt with by the other sections of the Act.” There was no need inEngland to import into this section matters which may have affectedthe legality of the transaction itself, for those would ordinarily apply, .whether section 97 (2) was enacted Or not. The only danger was thatsome rule relating to this particular subjfect would be regarded as repealedor abrogated, because it was not referred to in the Act. I do not thinkthat in Ceylon we should give any extended meaning to those words.
I am of opinion that even in Ceylon what was intended was to preservethe rules relating to negotiability and other special matters affectingthese classes of instruments, and not to import the whole of the commonlaw of England relating to separate branches of law also, whenevera negotiable instrument of this character is in question. To hold other-wise would result in this curious anomaly, that though the money claimembodied in the transaction was illegal or invalid under our law, thesecurity given for it would be regarded as valid.
• L. R. (1887) IS Q. B. B. 28G at 298.
*44KEUNEMAN J.—Marikar and Supramaniam Chettiar.
It is interesting to consider that section 2 of Ordinance No. 5 of 1852 wasactually wider in its scope than the section we are considering, and inview of its language it has been held, for instance, that -the English lawrelating to assignments of promissory notes had also been introducedinto this Colony, vide Mohamado v. Ahamadali But even sectionsof this kind have their limitations. For example, Ordinance No. 22 of 1866.(now section 3 of Cap. 66), introduced into this Colony the law of Englandin all questions relating to banks and banking, in language somewhatsimilar to that used in respect of bills of exchange. But it was held thatthe right of a pledge to sell his Security without recourse to a Court oflaw is peculiar to the English law of pledge and the common law of theland in the matter of the rights of mortgage and pledge does not giveplace to the English law. when the mortgagee or pledgee is a bank. ”See Hongkong and Shanghai Bank v. Krishnapillai It was perhapsa matter for argument and not free from doubt, if section 2 of OrdinanceNo. 5 of 1852 was still current, whether the prohibition against compoundinterest can be said to have been abrogated, or whether the subject ofinterest did not come within the scope of that – section. The mattercannot be said to be concluded by any case, such as the 16 N. L. R.case, which dealt with banks and banking. However there is no needto consider that, because this section has now been repealed. For. myself, I do not think that the more restricted language of section 97 (2)of Cap. 68 can be regarded as having put an end to the prohibitioninherent in bur law against the allowance of compound interest. Inmy opinion, the question of compound interest is a subject distinct andseparate from. that, of bills of exchange, cheques and promissory notes,and that the language of section 97 (2) does not affect the former question..
The next matter of consideration is what application this finding hasto the facts of the present case. • The first point is that even if there wasany notional conversion of interest into capital (cf. 38 N. L. R. 389)—I am of opinion in the present case that the evidence is insufficient toenable us to hold that there was a notional conversion—that conversionwas illegal and prohibited under our law so far as it related to interest,and that there has been in this case a “ collateral transaction enteredinto with a view to disguising the actual amount of the sum advanced ”within the meaning of section 14 of Cap. 67. If this is correct, thepromissory note A must be regarded as fictitious to the knowledge ofthe lender. This would give the Court jurisdiction to reopen the transac-tion under section 2 (i) (c). If there was no notional conversion, thenit is clear that this same conclusion must be reached. Further it wouldbe evident that the transaction “ is otherwise such that according toany recognized, principle of law or equity the Court would give relief”,and the right to reopen the transaction would arise under section 2 (1) (b).
I do not propose to deal with the question whether there has been adefault under sections 10 (1) or 10 (5)', because that is not necessaryfor the decision of this case.
One further question remains, viz., whether the District Judge hadpower under section 2 (1) (a) to reopen the whole transaction, on theground that it was harsh and unconscionable, or, as between the parties
1 17 .V. L. 11. iO'4.■2 33 -V. L. if. 249.
KEUNEMAN J.—Marikar and Supramaniam Qhettiar.445
thereto, substantially unfair. On this point I think there is no possibilityof doubt. On each of the notes P 29, P 30, and A simple interest wascharged at the rate of 15 per cent. Under section 4 (1) (c) this was thehighest rate of interest which can be considered reasonable, and anyinterest above 15 per cent, was to be deemed unreasonable and excessive.Yet,it is clear that in the case of each of the notes P 29 and P 30, thedefendant charged compound interest, with half yearly rests, and thetotal amount of interest so calculated was incorporated as principal intothe succeeding notes, viz., P 30 and A. Now even if P 30 and A canbe regarded as notional conversions of principal and interest into freshprincipal, and, as suggested in 38 N. L. R. 389, we must take* it that therewas a new notional loan of the total amount on eadh of these occasions,it is not possible for the money lender to take refuge behind tjiat plea.
It may be noted that on the decision of Lyle v. Chappel1 the moneylenders thought that they had found a loophole in the Money LendingAct, but as Goddard L.J. put it in Lyle, Ltd. v. Pearson and Medlycott %the Act could not “ be dodged in this patent and almost shameless way, sothat, having lent money at a harsh and unconscionable rate of interest,the money lender can get out of any inconvenience and difficulties intowhich that may put him by entering into a transaction embodying allthe previous loans and interest in a new promissory note and chargingsome low rate of interest on that, and then suing the defendant upon itas soon as he has made default ”, The terms of section 2 are wideenough to catch up a transaction of this kind, in spite of the fact that •there has been a notional conversion, and a notional loan.
It may be further emphasized here, that the principle of ■ notionalconversion adopted by Abrahams C.J. in 38 N. L. R, 389, is based uponthe case of Lyle v. Chappel {supra). In each of those cases it was held thatthere was evidence of a new notional loan. The mere signing of a pro-missory note for the aggregate principal and interest does not howeverprovide sufficient proof of such conversion. See the references to Lyle y.Chappel in later cases. In Temperance Loan Fund v. Rose3 Greer J. referredto his own judgment in the earlier case, and made this comment, “ Inthis case there was no evidence except the signature of the memorandumform, and we do not know whether it was an agreement in respect of themoney which had been borrowed previously or whether it is an' agreementfor the repayment of money which was notionally deemed to be lent atthe time of the signature. ” Lyle, Ltd. v. Pearson and Medleycott alsorefers to this. On the facts in the present case, I am of opinion that ithas not been proved that there was any notional loan—it-is not even inevidence that the previous note was returned on the occasion of themaking of a new note—and the only evidence- .available points in adifferent direction. Further as I have already stated, such 'notionalconversion of interest is obnoxious to our law. This, makes the positionof the defendant untenable.
I cannot support the arguments of defendant’s counsel, and I thinkthat the counter-objections fail..
– L. R. (1932) 1 K. B. 092.2 (1941) A. E. R. 3, p. 128, at 131.
2 (1932) 2 K. B. 522.
Somasunderam and UfcJcu.
In the result, both the appeal of the plaintiff and the counter-objectionsof the defendant must be dismissed with costs.
de Kketser J.—I agree with my brother Soertsz.
I have had the advantage of reading the judgment of my brotherKeuneman and I agree with him—
(i.) that the words " any other party ” in section 9 (1) (c) of theBusiness Names Ordinance (Chapter 120) are applicable to aparty suing upon a contract entered into by him with thedefaulter,
(ii.) that, in view of the settlement in 1931, section 3 of the MoneyLending Ordinance (Chapter 67) bars the reopening of thetransactions _ at a date exceeding six years before the date ofthis action.
(iii.) that the promissory note A and P 30 are fictitious within themeaning of section 2 of the Money Lending Ordinance and thatthe District Judge could have acted under sub-sections (a), (b) and(c) of section 2 (1) and ordered the reopening of the transactionsembodied in those notes.
(iv.) that the defendant is entitled to a decree in his favour in respectof any sum that may be found by the Court to be fairly due tohim on an account taken under section 2 (1) of the MoneyLending Ordinance.
(v.) that the Roman-Dutch law disallowing compound interest,even where it is expressly stipulated for, is in force in this Islandand has not been repealed by section 5 of the Civil Law Ordi-nance (Chapter 66).
I agree that the appeal and the counter-objections should be dismissed' with costs.
Appeal and cross-objections dismissed.