096-NLR-NLR-V-31-MUTTUAH-v.-PODISINGHO-APPUHAMY.pdf
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Present: Fisher C .J. and Akbar j.
MUTTIAH v. PODISINGHO APPUHAMT.306—D. G. Ne'gombo, 2,975.
Money Lending Ordinance—Mortgage bond payable by instalments—Renewal of bond—Sums set off as principal and interest—Com-pound interest—Discretion of Court—Ordinance No. 2 of 1918,*. 2 tf) («)•
Where the parties to a mortgage bond, in cancelling it, enteredinto a new bead under which the debtor received payments inmoney in addition to sums set off on account of principal andinterest due on the old bond,—
■Held (in an action on the bond), that it was within the discretionof the Court whether it should grant relief under section 2 (1) (a)of the Money Lending Ordinance.
Held, further [per Axbab J.], that the discretion was not takenaway even where the transaction on the face of it appeared toviolate the rule prohibiting compound interest.
PPEAL from a judgment of the District Judge of Negombo.
1930.
1 S. C. Mins, of January 22. 1930.
( »* )1980.
MuUiah v.Podisingho
Appukamy
H. F. Perera (with Weemttooria), for defendant, appellani.
Groos Dabrera (with H. K. P. de Silva), for plaintiff, respondent.
February 18, 1930. Fisher C.J.—
This is an appeal from a ‘judgment in favour of the plaintiff in anaction brought by him to recover the sum of Rs. 15,000 arid interestdue under a mortgage bond. The defendant invoke the jurisdic-tion conferred by section 2 of the Money Lending Ordinance, No. 2 of1918,1 to reopen money lending transactons where, “ there isevidence which satisfies the Court- that the return to be received bythe creditor over and above what was actually lent ….. is
excessive, and that the transaction was harsh and unconscionable.The only issue admitted to be tried in the District Court was “ whatsum is fairly due to the plaintiff on account of the transactions thathave led up to the bond sued upon?” and after-a very carefulexamination and consideration (f all the facts the learned DistrictJudge held that the amount due by the defendant to. the plaintiff,was the amount sued for. All the facts are fully set out. in mybrother Akbar’s judgment, which I have had the advantage ofreading, and 1 agree that the conclusion to which the learnedDistrict Judge came was right.
It was contended before us that the sum claimed in the action waspartly composed of compound interest and that therefore the amountfor which the defendant was liable must be reduced to that extentat all events, and Mudiyanse v. Pander Poorten2 was cited insupport of that contention. There is certainly no provision in themortgage bond on which the claim is based whch can be construedas an agreement to pay compound interest, and it cannot thereforebe impeached on that ground. But for the. purposes of consideringthe question of whether section 2 of the Money Lending Ordinanceshould be applied a Court is entitled to look at the origin andcomposition of all sums comprising the capital made payable by thedocument sued upon, and when that is done in this case the resultis that the sum claimed by the plaintiff is somewhat less than the1 Leg. En. II p. 582.2 23 N. L. R. 342.
The plaintiff sued the defendant on a mortgage bond, in which theconsideration is stated to be Rs. 15,000, for the recovery of a sum ofRs. 16,312.50, which included interest on the sum borrowed at therate of 15 per cent. The defendant moved for an accounting underthe Money Lending Ordinance, No. 2 of 1918, s. 2 (1) (a), and <•*Commissioner was appointed by Court. The learned District Judgegave judgment in favour of the plaintiff for the full amount of hisclaim.
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total amount advanced by him with interest at 15 per cent. I donot think that is an excessive return within the meaning of section 2of the Money Lending Ordinance under the circumstances.
The appeal must be dismissed with costs.
1930.
Fisheb G.J.
Muttiah v.PodiringhoAppuhamy
' Akbab J.—
The plaintiff is a Chetty money lender who sued the defendanton a mortgage bond (in which the consideration is stated to beBs. 15,000) for a sum of Bs. 16,312.50 with interest on the sumborrowed (Bs. 15,000) at 15 per cent, per annum from January 4,1929, till date of decree, and further interest till payment in full.The defendant prayed for am accounting under the Money LendingOrdinance, No. 2 of 1918, s. 2 (1) (a) and (b). A commissionerwas appointed by the Court whose report has been put in evidence.The parties went to trial on one issue, namely, what sum is fairlydue to the plaintiff on account of the transactions that have led upto the bond sued upon? The District Judge has given judgmentfor the plaintiff for the full sum claimed, and the appeal is pressedon the one ground stated by the commissioner in his report, namely,that only a sum of Bs. 11,275.91 was due to the plaintiff. Thedefendant’s Counsel argued this appeal on the ground that theplaintiff had arrived at the sum claimed by him by charging intereston interest, which is prohibited by the Roman-Dutch law. Thebond sued upon was entered into between the plaintiff and thedefendant on October 5, 1926, in the circumstances mentioned bythe commissioner in his report. It appears that the defendant hadentered into “instalment bonds’’ on previous occasions, and thebond sued upon in this case, which is for Rs. 15,000, was entered intoin October, 1926; owing to the cancellation of an instalment bondNo. 281 which had been entered into on April 13, 1926, for the sumof Rs. 10,980. This bond No. 281 in turn was entered into whenthe previous instalment bond for Rs. 6,000 drawn up on July . 28,1923, was cancelled on April 13, 1926, instead' of that bond beingallowed to run its full course of six years, commencing from July 28.1923. The defendant's Counsel in his appeal based his argumententirely on the commissioner’s report, because no evidence was ledat the trial on behalf of the defendant, the only evidence recordedbeing that of the plaintiff himself. According to the commissioner’sreport he was of opinion that the bond No. 281 of April 13, 1926,was wrongly given for the sum of Rs. 10,980, when it ought to havereally been given for Rs. 9,227.05. In the attestation clause ofbond No. 281 it is stated that the consideration is made up asfollows:—
Rs. 4,418—deducted in settlement of the balance due on mortgagebond No. 1,611 executed on July 28, 1923.
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1980.
Akbab J.
MutUahv.
Podisingho
Appuhamy
Es. 451.40^-deducted as the first instalment of part principaland two months* interest recovered in advance on bondNo, 281.
Es. 2,755—deducted in settlement of another bond No. 1,527 of' February 12, 1925.
Es. 2,000—in payment of a promissory note dated February 10,1926.
Es. 1,855.60—paid in cash on the execution of the bond No. 281.
All these various sums amounted to Bs. 10,980. The commis-sioner points out in his report that the sum of Es. 4,418 stated u>have been deducted in settlement of the balance due on bondNo. 1,611 was an overcharge, and that the sum really due was thebalance principal on this bond No. 1,611, i.e., Es. 3,888.36.Similarly the sum of Es. 2,755 stated to be due on bond No. 1,527was an overcharge, and that the real sum due on this bond 1,527 asbalance principal was Es. 338.31.
The Chetty explained in his evidence that the two bondsNos. 1,611 and 1,527 were instalment bonds and that the over-charges were made when the two bonds Nos. 1,611 and 1,527 werecancelled with the consent of the defendant for loss of profits theChetty had incurred in suddenly cancelling these two bonds whilstthey were in the course of running and before they had expired.As explained by the District Judge, these instalment bonds weregiven at a low rate of interest as the Chetty hoped to recoup himselffrom the instalments paid by the borrower every two months bywhich the principal was reduced. Every two months the borrowerhad to pay a certain sum of money in reduction of the principal andat the same time he had to pay interest on the full sum borrowedat the rate of interest at 8 per cent. So that it will be seen that by.the Chetty agreeing to cancel this bond almost in the middle of theperiod provided in the bond he .was forfeiting the profits whichwould have accrued to him if the bond had run its full course. Therecan be no doubt at all that the so-called overcharge was theconsideration for the Chetty agreeing to cancel the old bondand merging it into a new bond. Otherwise I cannot understandwhy the Chatty did not insist on the bonds running their fullcourse and the new loan being secured by another bond. So thatwhen it is provided in bond No. 281 that Es. 4,418 was to bereckoned as the amount due on bond No. 1,611, this was a newcontract and the overcharge was added on to the considerationstated in the new bond No. 281 executed- on the cancellation ofbond No. 1,611. As the District Judge says, this amount was aquid pro quo for the cancellation of bond No. 1,611. There is nodoubt at all that the .defendant agreed to this course because bondNo. 281 was signed by him, and in the attestation clause it is statedthat this amount Es. 4,418 was the sum agreed upon as the balance
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due on No. 1,611. Further on this calculation the sum ofEs. 1,355.60 was paid in cash to the defendant when bond No. 281was signed. The only question that arises in this appeal is whetherwhen bond No. 281 stated that the balance due on bond No. 1,611was Rs. 4,418 and not Rs. 3,333.36, the difference between thesetwo amounts was really interest added on to the principal or whetherit is a definite consideration paid by the defendant to induce theChelty to enter into a new bond. That it is evidence of a newcontract is clear from the fact that this difference between the twosums really represents interest as the rate of 12 per cent., which rateis not mentioned in the bond No. 1,611: Ordinarily, of course, therule of Roman-Dutch law strictly prohibits interest on interest.So that if a creditor and a debtor were to agree that the interestwas to be added on to the principal periodically and interest wasto be calculated on these two sums as principal, this would beillegal. Similarly, if there is a new contract on the terminationof an old contract, a Court can give relief to the debtor underthe Money Lending Ordinance if the terms of such new • contractappear to be inequitable and unconscionable. But the evidencein this case clearly shows that this principle cannot be applied to acase of this kind where the Chetty and the defendant cancelled arunning bond, under which the Che.tty hoped to get his full profitsduring the later part of the period fixed in the bond for the pay-ment of instalments, right in the middle of this period. Similarlywhen the bond sued upon in this case was entered into on October 5,1926, cancelling the bond No. 281 (which had only begun to runfrom April 12, 1926, i'.e., a period of only six months, when the fullperiod provided in the bond is six years), it' is quite evident, to mymind that the bond sued upon was based on a new contract. I donot, therefore, see on what ground the defendant can complain thatthe transaction was harsh and unconscionable. Even undersection 2 (1) (b) of Ordinance No. 2 of 1918 it is within the discretionof the Court whether it will reopen a transaction even when on theface of it the transaction would seem to violate the rule prohibitingt compound interest. The District Judge has refused to exercisethis discretion in this case, and I cannot say that he has wronglyexercised his discretion in this matter. In considering whether thetransactions relating to the cancellation of the bond were equitableor not one should keep in mind section 3 of the Ordinance which isas follows: “in the exercise of its powers the Court shall haveregard to the lapse of time, the conduct of the party praying forrelief and any other equitable considerations that the justice ofthe case may require to be taken into account. " T-he justice of thiscase seems to me to require that full effect must be given to the newbond entered into, because the defendant clearly got an advantageon the execution of the new bond in that actual cash payment was
1930.
Akbab J.
Muttiah v.PodieinghoAppuhamy
( *88 )
1980.
Akbab J.
Muttiah v.PodisinghoAppuhamy
made to hh^ at the time of the execution, over and above the sumsset off as consideration for the cancellation of the old bond. In theresult I think the judgment of the District Judge was right, and Iwould dismiss the appeal with costs.
Appeal dismissed.