016-SLLR-SLLR-2008-V-2-SATHASIVAM-v.-MERCANTILE-CREDIT-LTD.-AND-OTHERS.pdf
Sathasivam v
Mercantile Credit Ltd. and Others169
SATHASIVAMv
MERCANTILE CREDIT LTD. AND OTHERSCOURT OF APPEALEKANAYAKE, J.
GOONERATNE, J.
CA 192/95{F)
DC COLOMBO 4129/MHPMARCH 28, 2007
Hire Purchase – Consumer Credit Act No. 29 of 1982 – Finance Act -Management and administration of company vested in the Monetary Board -Company institutes action – legality? – Renouncing of benefits and privilegesby guarantor – validity? Debtor's right to proceed against a guarantor?
The defendant-appellant was a guarantor in the Hire Purchase actioninstituted by the respondent company against one A. The District Court heldwith the plaintiff-respondent. In appeal it was contended that, the respondentcompany has no locus standi to institute action, as under the provisions of theFinance Act, the Monetary Board has taken over all the functions. It was alsocontended that, all privileges and benefits of a guarantor has been retained interms of the Consumer Credit Act and the clauses in the Guarantee Bond -renouncing benefits and privileges – is contrary to law. It was furthercontended that the agreement was not read over and explained to him.
Held.
The plaintiff company does not cease to exist and only themanagement and administration of the company is vested in theMonetary Board, as such there is no legal bar for the company todefend or institute proceedings in a court of law.
Section 29 of the Consumer Credit Act contemplates of making HirePurchase agreements void in certain circumstances, but there isnothing in Section 29 which would prevent a guarantor renouncing hisrights under the Common Law and entering into a contract ofguarantee.
The signature of the 2nd defendant-appellant in the agreement isadmitted, if that be so the defendant-appellant cannot deny thecontents of the said document.
170Sri Lanka Law Reports(2008) 2 Sri LR
per Anil Gooneratne, J.
"A creditor would have a right to proceed against a guarantor as long as theprincipal debtor's right to pay remains and the principal debtor fails to satisfythe creditor or is in default according to the terms of the contract0.
APPEAL from the judgment of the District Court of Colombo.
Cases referred to:
CA 209/93 DC Colombo 9118 CAM 3.6.93.
GMOA v Senanayake 2001 3Sri LR 377 at 389.
S. Mandaleswaran with Ms. Aluthge Tharanga for 2nd defendant-appellant.Padma Bandara for respondent.
June 12. 2007
ANIL GOONERATNE, J.
This appeal arises from the judgment of the District Court ofColombo dated 29.3.95 on a hire purchase case. The appellant isthe 2nd defendant in the District Court case who was a guarantorto the hire purchase agreement marked 'B' annexed to the plaint. Inthe District Court trial preliminary issues were raised by the 2nddefendant appellant and the learned District Judge rejected andruled against those issues by his order of 19.11.1993. In this appealmatters raised by way of preliminary issues were also urged withemphasis on same namely that in view of the Gazette Notificationmarked 'A' annexed to the plaint, the Monetary Board has in termsof the Provisions of the Finance Act taken over the administrationand management of Mercantile Credit Limited (plaintiff) and that theplaint and the action is not properly constituted since only theMonetary Board could file plaint or that this action should bepreferred by the Monetary Board or that the plaint does not indicatethat authority has been given by the Monetary Board to the plaintiffto proceed with the action.
The other important matter raised by the 2nd defendantappellant is that clauses 21, 22 and 23 of the above agreementmarked ’b’ is contrary to the provisions of the Consumer Credit Act,No. 29 of 1982 and the law relating to sureties.Issue Nos. 9 and 9Awere not pursued.
Sathasivam v
CAMercantile Credit Ltd, and Others (Anil Gooneratne. J.)171
At the hearing of this appeal the Counsel for 2nd defendantappellant also contended that the agreement marked 'B* was notread over and explained to the 2nd defendant-appellant.
I would like to comment on the above objections referred toabove initially since it was the case submitted to this Court by the2nd defendant-appellant though the written submissions of theappellant refer to other matters. It is apparent that plaintiff institutedaction on or about 6.11.1992 and by that time Gazette Notificationmarked 'A' was in operation. The appellant contends that in termsof Section 20(2)(a) of Act No. 79 of 1988, all powers, duties andfunctions of the Board of Directors of the Company are vested withthe Monetary Board and in view of Section 20(3) of the said Actevery Director, Manager and Secretary of the Company will ceaseto function unless authorized by the Board and on account of thisthe Company itself cannot function.
Section 20 reads thus:
20(1) If the Board after review of the facts and circumstancesupon the receipt of a report by the Director under Section 18 is ofopinion that a finance company may by made a solvent and viableby action as hereinafter provided, it may by a notice published inthe Gazette take over the administration and management of afinance company for such period as may be specified in suchnotice. The Board may by a subsequent Notice published in theGazette extend the period specified in the original notice. TheBoard shall cause copy of every such notice to be sent to theRegistrar of Companies who shall make a minute thereof in thebooks relating to the company.
Where the Board takes over the administration andmanagement of a finance company the Board may –
exercise, perform and discharge with respect to suchfinance company all the powers, duties and functionsconferred or imposed on, or assigned to, the Board ofDirectors of such company by or under any written law orby the articles of association of such company.
enter into any agreement with any person or body ofpersons for the management of the finance company
172Sri Lanka Law Reports[2008] 2 Sri L.R
■ ^ * ~ “
subject to such conditions as may be agreed upon betweenthe Board and such person or body of persons havingregard to the interests of the depositors and creditors of thecompany and in the public interest.
make such arrangements as it considers necessary for theamalgamation of the finance company with another financecompany or any other institution with the consent of suchother finance company or institutions.
re-organise such finance company by increasing its capital,arranging for new shareholders, and by reconstituting itsBoard of Directors.
reconstruct the finance company in any such manner as itconsiders to be in the interest of depositors; or
direct any shareholder of any finance company to divest ortransfer the ownership of any shares owned by him to aperson nominated by the Board on payment by such personof compensation determined as follows-
where such shares are quoted, at the market valuethereof; or
where such shares are not so quoted, at a price to bedetermined by a valuer nominated by the Board.
During the period for which the administration andmanagement of a finance company is taken over by the Board,every director, manager and secretary of such finance companyshall, unless expressly authorized to do so by the Board, cease toexercise, perform and discharge any powers, duties and functionswith respect to such company.
Where the administration and management of a financecompany is taken over by the Board under subsection (1), theBoard may where it considers it in the public interest to do so –
arrange for or grant, such financial accommodation as itmay consider necessary to the finance company by way ofloans or other accommodation, other than by way of grants;and
Sathasivam v
CAMercantile Credit Ltd, and Others (Anil Gooneratne, J.)173
meet all costs, charges and expenses incurred in theadministration and management of the company;
Provided however that the Board may at any time after the takeover of the administration and management of a finance companyunder subsection (1) suspend the business of the companytemporarily, if it is of opinion, that it is in the interest of the public orof the depositors to do so, or direct the Director to apply to acompetent court to wind up the company, if on a report made by theDirector or any person authorized by the Board, it.appears to theBoard that the company cannot be made viable and solvent withina reasonable period of time. In the event of the Board directing theDirector to wind up the finance company, the provisions of section18 relating to winding up shall apply.
On a perusal of the above Section one cannot contend in the sameway as the appellant does and it is apparent that the company doesnot cease to exist and only the management and administration of thecompany is vested with the Monetary Board. As such there is no legalbar for the company to defend or institute proceedings, in a court oflaw. (there being no winding up or liquidation proceedings orassignment of it's rights at that point of time) Similar views wereexpressed in C.A. 209/93~h by Wijeratne, J. the proxy in this case hasbeen forwarded by the Monetary Board. As such there is no reason tointerfere with the District Court order of 19.11.93.
On the other matter referred to above, the appellant contendsthat all privileges and benefits of a guarantor has been retained interms of the Consumer Credit Act No. 29 of 1982, and clause 21,22 and 23 of document 'B' would take away or be contrary to thesaid law which would renounce the benefits and privilegesavailable under the common law, Section 29 of the said Act doesnot prohibit renouncing of privileges under common law by aguarantor.
Section 29 reads thus:
The following provisions in a hire-purchase agreement shall bevoid, that is to say, any provision –
whereby an owner or a person acting on his behalf isauthorized to enter upon the premises where the hirer
174Sri Lanka Law Reports[2008] 2 Sri LR
resides for the purpose of taking possession of goods whichhave been let under a hire-purchase agreement or isrelieved from liability for any such entry; or
whereby the right conferred on a hirer by this Act todetermine the hire-purchase agreement is excluded orrestricted, or any liability in addition to the liability imposedby this Act is imposed on a hirer by reason of thetermination of the hire-purchase agreement by him underthis Act; or
where by a hirer, after the determination of the hire-purchase agreement in any manner whatsoever, is subjectto a liability which exceeds the liability to which he wouldhave been subject if the agreement had been determinedby him under this Act; or
whereby any person acting on behalf of an owner or sellerin connection with the formation or conclusion of a hire-purchase agreement is treated as, or deemed to be, theagent of the hirer or buyer; or
whereby an owner or seller is relieved from liability for theacts or defaults of any person acting on his behalf inconnection with the formation or conclusion of a hire-purchase agreement; or
whereby the hirer or buyer is required to avail himself of theservices, as insurer or a repairer or in other capacitywhatsoever, of a person other than a person selected bymutual agreement between the owner and the hirer orbuyer.
The admission recorded in this case also needs to beconsidered in the light of the objection of the 2nd defendant-appellant. The signature of the 2nd defendant in agreement 'B‘ isadmitted. If that be so can the 2nd defendant appellant deny thecontents of the said document. In a way one could argue that it isnot safe to draw inferences from that admission. But having regardto ordinary business of this nature and the usual human behaviourone cannot plead ignorance of the transaction. In any eventprovisions of the statute needs to be examined. Section 31
Sathasivam v
CAMercantile Credit Ltd. and Others (Anil Gooneratne, J.)175
(interpretation) reads thus:
"contract of guarantee", in relation to any hire-purchase agreementmeans a contract whereby a person (in this Act referred to as"guarantor") guarantees the performance of all or any of thehirer's obligations under the hire-purchase agreement;
"court" means the court having jurisdiction to entertain the suit oraction;
"guarantor" means a person who has guaranteed the performanceby the hirer of all or any of his obligations under a hire-purchase agreement;
Accordingly the 2nd defendant has guaranteed and agreed topay in case, of default of the principal debtor or the hirer. Thelearned Trial Judge in his order refer to Section 29 of the ConsumerCredit Act and observes that the said section contemplates ofmaking the hire-purchase agreement void in certain circumstancesbut there is nothing in that section which would prevent a guarantorrenouncing his rights under Common Law and entering into acontract of guarantee. The Trial Court Judge's views on samecannot be disputed.
Defendants who choose to renounce or waive as per the well-known principle expressed in the maxim "quilibet potest renunciarejuri pro Se introducto" which means – anyone may, at his pleasure,renounce the benefit of a stipulation or other right introduced entirelyin his own favour – Brooms legal Maxims 10th Edition – pg.477.
This legal maxim is recognised by our courts as per Upali De ZGunawardena, J. in GMOA v Senanayake w at 384.
The evidence led by the respondent Company of one MichelVandott the Finance Manager was that the agreement in questionwas read over as explained and signed by the 2nd defendant in hispresence and another employee of the company. One DuleethFernando had in the presence of the said witness read theagreement and explained same to the appellant and if a translationwas necessary into the Tamil language there was also oneSulochana Jayasinghe an employee of the company also present.
This evidence has been submitted to the trial court by the saidwitness and there had been no successful attempt to demolish the
176Sri Lanka Law Reports[2008] 2 Sri L.R
version of the said witness of the Company. The Trial Court Judgehas accepted the evidence of the said witness and this court seesno reason to interfere with those findings. It was the position of the2nd defendant appellant that he signed the agreement in questionas a witness and not as a guarantor. The learned District Judge hasrejected this position of the 2nd defendant. The Trial Court Judgeclearly explains that on the evidence led before the District Court itwas said that the 2nd defendant-respondent had submitted hisbank statements, tax receipts, Auditors reports of his business etc.and there is no reason to submit these documents to the companyif his position was that he was only a witness to the transaction. TheTrial Court Judge's views on same is correct and rejection by theDistrict Judge of the 2nd defendant-appellant's version of being awitness cannot be faulted.
A creditor would have a right to proceed against a guarantor aslong as the principal debtor's right to pay remains and the principaldebtor fails to satisfy the creditor or is in default according to theterms of the contract. The several objections raised in this appealby the appellant does not have any merit which were also put inissue in the original court, unsuccessfully. The learned DistrictJudge's judgment cannot be faulted as he has given cogentreasons for rejecting the appellant's version. In the circumstances,I dismiss this appeal with costs fixed at Rs. 15,000/- and affirm thejudgment of the District Court.
CHANDRA EKANAYAKE, – I agree.
Appeal dismissed.