048-NLR-NLR-V-71-SAWDOON-UMMA-d-o-Tamby-Raja-and-others-Appellants-and-FELIX-H.-G.-FERNANDO-.pdf
Sawdoon XJmma v. Fernando
217
1968 Present: H. N. G. Fernando, C J., and Sirimane, J.
SAWDOON UMMA (d/o Tamby Baja) and others,Appellants, and FELIX H. G. FERNANDO and others,
Respondents
S. C. 328165—D. C. Kandy, 3481/MB
Debt Conciliation Ordinance {Cap. 81)—Sectione 30, 40 (J), 43 (1) and {2), 44—Settle-ment of a mortgage debt—Failure of the debtor to carry out the terms of thesettlement—Procedure thereafter—Incapacity of Court to enter a hypothecarydecree in defiance of provisions of Part II of Mortgage Act.
Whore a debt duo on a mortgage of land has become the subject of asettlement under the Debt Conciliation Ordinance, and the settlementcontains no provision for the entry of a hypothecary decree, section 43 ofthe Debt Conciliation Ordinance does not enable the District Court to entera hypothecary decree when the debtor fails to comply with the terms of. thesettlement.
Further, a settlement under the Debt Conciliation Ordinance cannot conferjurisdiction on a Court, even by express provision, to enter a hypothecarydecree otherwise than in an action maintained in conformity with the specialprocedure laid down in Part II of the Mortgage Act.
“ (a) Where the debt the payment of which is secured by a mortgagebond is the subject of a settlement, the right of the creditor to a hypothecarydecree subsists under the settlement, unless the settlement expressly providesotherwise.
(6) Where the debtor fails to carry out the terms of the settlement, thecreditor should apply to a competent Court under s. 43 of Chapter 81and he can thus obtain a decree absolute to compel the debtor to performhis obligations, principally the obligation to pay the debt and interest,imposed by the settlement.
(e) Where in addition the creditor desires to obtain a hypothecary decreeover the property originally mortgaged to him, his right under the mortgagebond to such a decree is preserved by s. 40 (1); but he can obtain such adecree only in a hypothecary action, the procedure in which will be governedby the Mortgage Act.
(d) The hypothecary decree entered in such an action will render themortgaged property bound and executable, not for the amount of the originaldebt, but for the amount of the debt and interest payable in terms of thesettlement. ”
Ap
PEAL from a judgment of the District Court, Kandy.
lx xi—10
218
H. N. G. FERNANDO, C.J.—Sawdoon Umma v. Fernando
C. Ranganathan, Q.C., with 8. A. Marikar, for the Respondents-Appellants.
N. E. Weerasoona, y.C’., witn M. 8. M. JSazeem, lor tne Petitioners-Respondents.
Cur. adv. vult.
October 11, 1968. H. N. G. Fernando, C.J.—
The defendants in this case had executed a mortgage bond in 1954in favour of a creditor as security for the payment of a debt of Rs. 20,000and interest. On an application made to the Debt Conciliation Board,a settlement relating to the debt was recorded in terms of s. 30 of theDebt Conciliation Ordinance (Cap. 81). The settlement of 3rd February1959 provided as follows :—
“ that interest should be calculated at the rate of 7% per annumand that a sum equivalent to 34 months’ interest was due upto the end of January this year.
that the debtors should pay jointly and severally a sum of Rs. 100/-
on or before 4th May 1959 and thereafter they should pay byquarterly instalments of Rs. 500/- each. The first of suchinstalments will be paid on or before 4th August, 1959.
that the full sum should be paid to the creditor within a period
of 5 years—that is, on or before 4th February 1964.
that in the ovent, of a single default the creditor is at liberty to
seek legal remedy.
that delivery of the bond discharged with the deeds and the payment
of the balance full sum are concurrent conditions—that is,the creditor must deliver the bond discharged with the deedswhen the debtor tender payments of the balance full sum. ”
It would appear that no payments were made by the defendants inaccordance with paragraph (2) of the settlement. In October 1961, thecreditor made an application to the District Court asking for a decreeto he entered in terms of the settlement and asking also that a hypothecarydecree be entered for the sale of the property mortgaged to the creditorby the bond of 1954. A decree nisi was accordingly entered on 14thNovember 1961. The original creditor died thereafter, and the tworespondents to this appeal were substituted in the place of the originalcreditor.
At the subsequent inquiry in the District Court, the only objectiontaken against the creditor’s application was that the original creditorhad not signed the proxy filed with the application. This objectionwas rejected 7>y the District Judge and he ordered the Decree nisi tobe made absolute. The point of importance is that the Decree enteredby the District Court is a hypothecary decree for the sale of the landmortgaged by the bond of 1954.
H. N. Q. FERNANDO, O.J.—Sawdoon Umma v. Fernando
219
Counsel appearing for the debtors has~argued in this appeal thata hypothecary decree can be entered by a Court only in a hypothecaryaction instituted and maintained in accordance with the procedurelaid down in the Mortgage Act (Cap. 89), and that the District Judgehad no jurisdiction to enter such a decree upon the application madeby the creditor in this case. That Act, particularly in Part II, makesspecial provision for the procedure in a hypothecary action, which isdefined in the Act as ‘‘an action to obtain an order declaring the mortgagedproperty to be bound and executable for the payment of the moneysdue upon the mortgage and to enforce such payment by a judicial saleof the mortgaged property ”. I need state no reasons for the opinionthat a Court cannot enter a decree which includes an order in termsspecified in that definition except in a regular action maintained incompliance with Part II of the Mortgage Act.
The advisers of the creditor in this case, in seeking an appropriateremedy for the failure of the debtors to comply with the settlement of1959, have obviously been influenced by certain provisions of the DebtConciliation Ordinance which it is necessary to reproduce here:—
s. 40 (2) A settlement under section 30 or section 31 shall when theoriginal and the duplicate thereof have been countersignedby the Chairman and subject to any order the. Boardmay make in respect of that settlement under section 64,be final between the parties, and the contract in respect of any.debt dealt with in the settlement shall become merged in thesettlement
Provided, however, that where any debt secured by anycharge, lien or mortgage over any property, movable orimmovable, is dealt with in any settlement, the rights of thecreditor under such charge, lien or mortgage shall, unlessotherwise expressly provided in the settlement, be deemed tosubsist under the settlement to the extent of the amountpayable thereunder in respect of such debt, until such amounthas been paid or the property over which the charge, lien ormortgage was created has been sold for the satisfaction of suchdebt.
8. 43 (2) Where the debtor fails to comply with the terms of anysettlement under this Ordinance, any creditor may, except in acase where a deed or instrument has been executed in accordancewith the provisions of section 34 for the purpose of giving effectto those terms of that settlement, apply to a court of competentjurisdiction, at any time after the expiry of three months fromthe date on which such settlement was countersigned by theChairman of the Board, that a certified copy of such settlementbe filed in court and that a. decree be entered in his favourin terms of such settlement. The application shall be bypetition in the y^ay of summary procedure, and the parties
220
>, C.J.—Saiodoon Umma v. Fernando
to the settlement, other than the petitioner, shall be namedrespondents, and the petitioner shall aver in the petitionthat the debtor has failed to comply with the terms of thesettlement.
(2) If the court is satisfied, after such inquiry as it mayseems necessary, that the petitioner is prima facie entitled tothe decree in his favour, the court shall enter a decree nisiin the petitioner’s favour in terms of the settlement. Thecourt shall also appoint a date, notice pf which shall be served inthe prescribed manner on the debtor, on or before which the .debtor may show cause as hereinafter provided against thedecree nisi being made absolute.
The effect of s.40 in the facts of the present case is that the obligationof the debtors to re-pay the sum of Rs. 20,000/- with interest becamemerged in the settlement of February 1959. But the “ contract inrespect of the debt ” included the further obligation that the re-paymentwas secured by the hypothecation of land, and that hypothecation alsobecame merged in the settlement. Neither party to this appeal hascontended for the proposition that the settlement had the effect ofreleasing the debtors from their contractual obligation that the landmortgaged by the bond of 1954 is liable to be declared bound andexecutable for the payment of the debt due from the debtors in this case.This proposition is negatived in the Proviso to s.40 (1) of Cap. 81. Interms of that Proviso, the rights of the creditor under the mortgage bondof 1954 are deemed to subsist under the settlement, until the amount ofthe debt dealt with in the settlement has been paid or the property over whichthe mortgage was created has been sold for the satisfaction of such debt.
The concluding words of the Proviso, which I have italicised above,clearly establish that a settlement under the Debt Conciliation Ordinance,unless it expressly provides otherwise, does not extinguish the right of acreditor to obtain a hypothecary decree for the sale of property mortgagedto him as security for a debt. But s.43 of the Debt Conciliation Ordinanceappears to have led to some uncertainty as to the mode in which thatright is to be enforced.
If a debtor fails to comply with the terms of a settlement, s.43 entitleshim to obtain a decree nisi in terms of the settlement, and s.44 empowersthe Court to make such a decree absolute. But the provisions of thesettlement in this case do not in fact authorise a Court to enter a hypothe-cary decree ; the settlement only provides for the rate of interest payableby the debtors and for capital payments to be made by them. Onthis ground alone, namely that the settlement contains no provision forthe entry of a hypothecary decree, I must hold that s.43 of the DebtConciliation Ordinance did not enable the District Court in this caseto enter a hypothecary decree.
H. K. O. FERNANDO, OJ.—Sawdoon Umma v. Fernando
221.
Bat I hold farther that a settlement under the Debt Conciliation'.Ordinance cannot confer jurisdiction on a Coart, even by express:provision, to enter a hypothecary decree otherwise than in an actionmaintained in conformity with the special procedure laid down in PartII of the Mortgage Act. I have elsewhere referred to the objects andpurposes of that Act (Shafeek v. Solomon de Silva and others l);these will be defeated if parties to a mortgage of land, or the membersof the Debt Conciliation Board, can in a settlement confer on a Coart ajurisdiction to enter a hypothecary decree in defiance of the provisionsof the special law contained in the Mortgage Act, and previously containedin the Mortgage Ordinance of 1927.
The Proviso to s. 40 (1) of Chapter 81 provides that the right of acreditor under a mortgage subsists under the settlement, not by theforce of the settlement, but by force of the law as enacted in that Proviso.By virtue of the Proviso, that right subsists until the amount (of the
debt due under the settlement) is paid or the property over which
the mortgage is created has been sold in satisfaction of the debt ”. Thereis thus a reference in the Proviso to the forced sale of mortgaged property,and such a sale can lawfully take place only in a hypothecary action,the procedure in which is governed by Part II of the Mortgage Act.
In the case of Samarasinghe v. Balasuriya * this Court held that, wherea debt due on a mortgage bond has become the subject of a settlementunder the Debt Conciliation Ordinance, the obligation to repay thedebt thereafter arises on the settlement, and not on the earlier mortgagebond. The judgment therefore rightly held that the action in thatease must be dismissed because it was an action to recover the debtdue on the bond and not on the settlement. But certain further obser-vations, made obiter in that judgment, appear to express the opinionthat the creditor’s right of mortgage becomes merged in the settlement,and is therefore extinguished or wiped out. With much respect, it seemsto me that the Court would not have reached that opinion, if therircumstanoes of that case had required full consideration of the termsof s. 40 (1) of Chapter 81. The language of the section, in particularof its Proviso, shows that the creditor’s former right under the mortgage,
e. the right of hypotheoas distinct from the right to receive paymentof the debt, continues to subsist under the settlement, even though thesettlement may not expressly so provide. The creditor thus retainshis right over the property mortgaged to him as security for paymentof the debt due under the settlement. A secured creditor cannot losethe benefit of his security, merely because in proceedings before theDebt Conciliation Board he agrees out of sympathy for his debtor to asettlement which only reduces the amount of a debt or the rate ofinterest payable upon the debt.
1 (1967) 69 N. L. R. 481.,
(1968) 69 N L. B. 206.
222
H. N. G. FERNANDO, C.J.—Saxodoon Utnma v. Fernando
Learned Counsel appearing for the creditors in this appeal has properlyinformed us that the advisers of creditors who have been parties to settle*ment under the Debt Conciliation Ordinance are uncertain as to thecorrect procedure which is to be followed when debtors fail to canyout the terms of such settlements. I venture therefore to state thefollowing opinion:—
(а)Where the debt the payment of which is secured by a mortgage
bond is the subject of a settlement, the right of the creditorto a hypothecary decree subsists under the settlement, unlessthe settlement expressly provides otherwise.
(б)Where the debtor fails to carry out the terms of the settlement,
the creditor should apply to a competent Court under s. 43of Chapter 81 and he can thus obtain a decree absolute tocompel the debtor to perform his obligations, principally theobligation to pay the debt and interest, imposed by thesettlement.
(o)Where in addition the creditor desires to obtain a hypothecarydecree over the property originally mortgaged to him, hisright under the mortgage bond to such a decree is preservedby s. 40 (1); but he can obtain such a decree only in a hypothe-cary action, the procedure in which will be governed by theMortgage Act.
The hypothecary decree entered in such an action will render themortgaged property bound and executable, not for the amountof the original debt, but for the amount of the debt and interestpayable in terms of the settlement.
I should add that since the original debt becomes merged in a settle-ment under the Debt Conciliation Ordinance, such a settlement shouldclearly set out the amount of the debt to be payable according to itsterms.
The decree under appeal is amended by the deletion therefrom ofall provisions relating to the mortgaged property, to the said propertybeing bound and executable for the payment of the amount of the decree,and to the sale of the said property, and by the deletion also of theSchedule to the decree.
SmuLANX, J.—I agree.
Decree amended.