Sockalingam Chettiar V. Ramanayake Et Al.,

[N THE PRIVY COUNCIL.]

1936 Present : Lord Maugham, Lord Salvesen, and
Sir Lancelot Sanderson.

SOCKALINGAM CHETTIAR v. RAMANAYAKE et al.

Mortgage bond-Security for loan-Fictitious promissory notes given-Action on bond-Loan recoverable-Notes inadmissible in evidence-Money Lending Ordinance, No. 2 of 1918. ss. 2. 10. and 14.

Where a mortgage bond was entered into to secure a loan in respect of which promissory notes, which were " fictitious " within the meaning of section 14 of the Money Lending Ordinance, were given,-

Held, that an action may be maintained on the bond to recover the loan, notwithstanding the provisions of section 10 of the Money Lending Ordinance.

Held, further, that the Court has power under section 2 of the Money Lending Ordinance to reopen the transaction and to take an account between the parties.

The fictitious promissory notes are not admissible in evidence to prove the loan.

APPEAL from a judgment of the Supreme Court [1 35 N. L. R. 33.]

R. M. Montgomery K. C. (with him Hallett, K. C., and L. M. de Silva, K. C.), for appellants. Chinnadurai and Lady Chatterjee, for the respondents.

November 19, 1936. Delivered by SIR LANCELOT SANDERSON.

This is an appeal by the plaintiffs against two decrees of the Supreme Court of the Island of Ceylon dated August 1, 1933, whereby the Supreme Court set aside an order and a decree of the District Court of Colombo dated December 9 and 21, 1932, respectively and dismissed the action with costs. The respondents are the first and second defendants in the action.

The material facts are as follows : -

By a mortgage bond dated July 28, 1928, the first defendant (Ramanayake) covenanted with the first plaintiff (Sockalingam) and one Ramasamy to pay any sum of money which might thereafter be or become owing and payable to the first plaintiff or the said Ramasamy or either of them upon or in respect of any promissory notes or cheques made or endorsed by the first defendant or upon chits, tundus, or other writings or in respect of any loans or advances or in respect of any accounts or transactions whatsoever with interest at the rate of 12 per centum per annum. The bond further secured all such sums by the mortgage of certain properties therein specified.

On April 1, 1931, the said Ramasamy assigned all his rights under the said mortgage bond to the second plaintiff, and the action in which this appeal arises was brought on the same day.

The plaintiffs thereby sought to recover the sum of Rs. 129,415.87 alleged to be due in respect of money lent on the security of the said bond and upon certain promissory notes: they prayed further for the usual mortgage decree for sale of the mortgaged property in default of payment of the said sum.

The second defendant was made a party to the action as a puisne encumbrancer of the mortgaged property.

Certain pleas were made and issues raised to which it is not now necessary to refer, and the questions which arise in this appeal relate to the issues numbered 8 and 9 in the judgment of the District Judge. They are as follows :-

" (8) Are the promissory notes mentioned in paragraph (6) of the plaint or any notes of which they are renewals not enforceable by reason of the failure to give details required by section 10 of Ordinance No. 2 of 1918 ?

" (9) In view of the several allegations in the plaint is the second defendant entitled to ask that the transactions between the first defendant and the plaintiffs or either of them be reopened and an account taken ? "

The District Judge decided that the promissory notes in question were themselves not enforceable but at the same time he held that they were admissible in evidence to prove the amount due on the mortgage bond.

On the 9th issue he held that the second defendant was entitled to ask that the transactions between the plaintiffs and the first defendant should be reopened.

Accordingly on Dec

Click Here to Read the rest of this document