Bania v Ghurahu [1957] FJLawRp 11; [1956-1957] 5 FLR 70 (28 June 1957)

[1956-1957] 5 FLR 70

IN THE SUPREME COURT OF FIJI

Civil Jurisdiction

Civil Action No. 262 of 1956

Between:

DURGA BANIA
Plaintiff

And

GHURAHU
Defendant

Moneylenders Ordinance, Cap. 185-compound interest irrecoverable from borrower by assignee of debt.

The plaintiff claimed for principal and interest allegedly due under a Bill of Sale and a Crop Lien. The defendant contended, inter alia, that the plaintiff was an unlicensed moneylender and also that he had claimed compound interest. The court held, upon the facts, that the plaintiff was not a moneylender, but that the defendant was being charged compound interest. The court further concluded that while the prohibition against the charging of compound interest, under section 17 Moneylenders Ordinance, Cap. 185, applied only to the loan of money by a moneylender, in this case the plaintiff had in fact taken over the defendant's liability to a third party who was a registered moneylender. Section 26 of the Moneylenders Ordinance, Cap. 185, provides:

"Subject as hereinafter provided the provisions of this Ordinance shall continue to apply as respects any debt to a moneylender in respect of money lent by him after the commencement of this Ordinance or in respect of interest on money so lent or of the benefit of any agreement made or security taken in respect of any such debt or interest notwithstanding that the debt or the benefit of the agreement or security may have been assigned to any assignee and, except where the context otherwise requires, references in this Ordinance to a moneylender shall accordingly be construed as including any such assignee as aforesaid:

Provided that-

(a) notwithstanding anything in this Ordinance-

(i) any agreement with or security taken by a moneylender in respect of money lent by him after the commencement of this Ordinance shall be valid in favour of any bona fide assignee or holder for value without notice of any defect due to the operation of this Ordinance and of any person deriving title under him; and

(ii) any payment or transfer of money or property made bona fide by any person, whether acting in a fiduciary capacity or otherwise, on the faith of the validity of any such agreement or security without notice of any such defect shall, in favour of that person, be as valid as it would have been if the agreement or security had been valid:

But in every such case the moneylender shall be liable to indemnify the borrower or any other person who is prejudiced by virtue of this section and nothing in this proviso shall render valid an agreement or security in favour of or apply to proceedings commenced by an assignee or holder for value who is himself a moneylender; and

(b) for the purposes of this Ordinance the provisions of section 29 of the Land (Transfer and Registration) Ordinance shall apply as if the expression 'purchaser' included a person making any such payment or transfer as aforesaid.

Nothing in this section shall render valid for any purpose any agreement, security or other transaction which would, apart from the provisions of this Ordinance, have been void or unenforceable."

Held:-

(1) The court will not lightly permit a borrower to be deprived of his protection under the Moneylenders Ordinance by permitting a registered moneylender to transfer his interests to a person who is not a moneylender with the result that the borrower then pays compound interest, merely by the use of documents which are not made out as an assignment but have the same result.

(2) The plaintiff was here in no better position than the third party moneylender, and in so far as the contract upon which he sued provided for compound interest, it was illegal.

M. M. Ashraf for the Plaintiff.

H. A. L. Marquardt-Gray for the Defendant.

HAMMETT, J. [28th June, 1957]-

The plaintiff's claim is for the sum of £353 17s. 4d. being the balance of principal and interest due under a Bill of Sale and a Crop Lien.

Many of the facts are not seriously in dispute and I hold them to be as follows.

Prior to 1955 the defendant was indebted to one Haria a licensed moneylender in the sum of £330. Haria was about to leave for India. It was agreed between Haria, the plaintiff, and the defendant that the plaintiff should take over this debt from Haria and that the defendant should pay it to the plaintiff.

Pursuant to this arrangement the defendant on 18th February, 1955, gave the plaintiff a Bill of Sale and a Crop Lien to secure the payment of the following sums of money:-

1. £380 12s. 0d. stated in the Bill of Sale to be an existing debt,

2. £22 0s. 0d. a further advance,

and interest at the rate of 19 per cent per annum on the total of £402 12s. 0d. thus secured. Since that date the plaintiff has received a total of £51 18s. 5d. from the Colonial Sugar Refining Co. Ltd. under the Crop Lien and the net sum of £68 6s. 8d. realized under the sale of the property secured under the Bill of Sale.

After giving credit for these sums the plaintiff claims that there is a balance due to him of £353 17s. 4d.

The defence relies on the following matters:-

Firstly:-

That the plaintiff has not credited the defendant with the payment to him of £141 cash further on account of the debt.

Secondly:-

That the plaintiff is an unregistered moneylender and he is therefore debarred by the Moneylenders Ordinance from enforcing his claim.

Thirdly:-

That the plaintiff has claimed compound interest.

The first issue is one solely of fact. The defendant maintains he paid the plaintiff £141 in cash in Suva Market in July 1956 in the presence of several persons three of whom have given evidence to support him. No receipt was given for this payment. The plaintiff categorically denies that any such payment was made.

The defendant said he asked for a receipt at the time of payment but that the plaintiff would not give him one. Apparently he was satisfied with the plaintiff's alleged assurance that he would give him a receipt if he called to see him at his store. Nevertheless, if the defendant is to be believed, shortly afterwards one of his witnesses, at his request, made a note in English in the defendant's notebook recording the fact of such payment. The defendant did not explain to my satisfaction why if his story were true he caused this note to be made so soon after the plaintiff had left and the payment had been made instead of whilst the plaintiff was present. Again the entry was not made in a book of account in chronological order but at the back of a note book in which practically all the other entries had been made in Hindi. If the defendant is to be believed he did ask for a receipt. He did therefore appreciate the necessity for this and I am still at a loss to understand why he did not insist on being given a receipt for this large sum of money before making the payment. None of the witnesses for the defence appeared to me to be more worthy of belief than the plaintiff. In view of the categoric denial of the plaintiff I am not satisfied that the defendant has discharged the onus of proof which lay on him to establish the payment of this sum.

The second issue concerns the presumption arising from the Moneylenders Ordinance, Cap. 185, section 3 which reads as follows:-

"Save as excepted in paragraphs (a), (b), (c) and (d) of the definition of 'moneylender' in section 2, any person who lends a sum of money in consideration of a larger sum being repaid shall be presumed until the contrary be proved to be a moneylender."

The plaintiff admits he contracted with the defendant for the defendant to pay him interest at 10 per cent on the total sum due by the defendant. The presumption therefore arises that the plaintiff is a moneylender, i.e. is carrying on business as a moneylender. He admits he is not licensed as such and unless he is able to rebut this presumption his claim must fail.

In rebuttal of this presumption there is only the evidence of the plaintiff himself. He has stated that he is a storekeeper and a cultivator. He has denied that he is a moneylender or that he carries on business as a moneylender. He was cross-examined about other alleged moneylending transactions all of which save one he denied. He admitted that he charged interest on overdue store debts. He further admitted that he had lent money to one Ram Datt on the occasion of his daughter's wedding. Apart from that he said he had only helped 3 or 4 people with small sums without interest. No evidence was called by the defence to contradict the plaintiff's evidence on this issue other than the defendant's bare statement that the plaintiff is a moneylender. If, as the defendant contended, the plaintiff is a well-known moneylender in his district, one would expect that there would be more evidence than this forthcoming on this issue.

In my opinion the sworn testimony of the plaintiff that he is not a moneylender and that he is not carrying on business as a moneylender notwithstanding his admission of having made two loans at interest and three or four small loans without interest is, in the absence of any evidence to the contrary sufficient evidence to rebut the presumption that he is a moneylender arising under section 3 of the Moneylenders Ordinance. I hold that the plaintiff is not a moneylender, and is not carrying on business as a moneylender.

The third issue concerns the alleged payment of compound interest.

Under cross-examination the plaintiff stated that the sum of £402 12s. 0d. secured by the Bill of Sale in this case was made up of the following items:

1. £330 0s. 0d.-the defendant's loan to Haria which the plaintiff took over

2. £30 0s. 0d.-the sum due to the plaintiff by the defendant for goods sold

3. £20 12s. 0d.-an additional sum the purpose of which he could not recollect

4. £22 0s. 0d.-the Solicitors costs of preparing the documents on the transaction paid by the plaintiff for the defendant at the defendant's request.

The defendant maintains that the £402 12s. 0d. was made up as follows:-

1. £330 0s. 0d.-the debt originally due to Haria:

2. £30 0s. 0d.-a debt due by defendant to plaintiff's wife.

3. £20 12s. 0d.-agreed interest.

4. £22 0s. 0d.-solicitor's costs.

The defendant is estopped by the terms of the Bill of Sale itself from denying that the sum of £30 was due to the plaintiff but was in fact due to the plaintiff's wife

As far as the sum of £20 12s. 0d. is concerned, since the plaintiff could give no explanation of this sum I accept the evidence of the defendant that it was a sum of agreed interest.

Since the agreement provided for this payment of 10 per cent interest on the total sum of £402 12s. 0d. it is clear that it provided for payment of interest on interest, i.e. compound interest.

The defendant in this respect relies on the Moneylenders Ordinance, Cap. 185, section 17, the material part of which reads as follows:-

"Any contract after the commencement of this Ordinance for the loan of money by a moneylender shall be illegal in so far as it provides directly or indirectly for the payment of compound interest or for the rate or amount of interest to be increased by reason of any default in the payment of sums due under the contract; etc."

It will be observed that this prohibition against the charging of compound interest applies only to "the loan of money by a moneylender".

I have already held that the plaintiff in this case is not a moneylender and so it would appear at first sight that the provisions of section 17 would not be applicable in this case.

Section 26 of the Moneylenders Ordinance does however deal with the case of the assignments of debts due to moneylenders. Admittedly the documents in this case do not strictly amount to an assignment to the plaintiff of the defendant's debt to Haria. Nevertheless it is abundantly clear that this is what in fact it was. It is not disputed that the plaintiff in this case did not pay or lend the defendant any money but took over the defendant's liability to Haria. The effect and substance of the transaction was that of an assignment. The plaintiff himself was asked in cross-examination if he had advanced the money to pay off Haria and he replied-

"Well I didn't give him cash I took over the debt."

The plaintiff also admitted that he knew that Haria was a moneylender.

The whole intention of the Moneylenders Ordinance is to protect the interests of the borrower. The court will not lightly permit a borrower to be deprived of this protection by permitting a registered moneylender to transfer his interests to a person who is not a moneylender at disadvantageous terms to the borrower with the result that the borrower then pays compound interest, merely by the use of documents which are not made out as an assignment but which in effect have exactly the same result.

The material part of section 26 reads as follows:-

".... the provisions of this Ordinance shall continue to apply as respects any debt to a moneylender .... or in respect of interest on money so lent .. .. notwithstanding that the debt .... may have been assigned to any assignee and except where the context otherwise requires references in this Ordinance to a moneylender shall accordingly be construed as including any such assignee as aforesaid."

When the plaintiff took over this debt of the defendant from Haria he imposed the terms that-

(a) £20 12s. 0d. should be paid as agreed interest; that

(b) interest at 10 per cent should be paid thereafter on the balance of the debt of £330 plus this £20 l0s. 0d. interest, i.e. that compound interest should be charged.

In my opinion the plaintiff is in no better position than Haria was and by virtue of the provisions of sections 17 and 26 the contract in so far as it provides for the payment of compound interest, is illegal.

In these circumstances the plaintiff would appear to be entitled to succeed in his claim only in so far as it relates to the principal debt of £402 l0s. 0d. less £20 12s. 0d. interest. Against this must be set off the sums of £51 18s. 8d. received by the plaintiff from the Colonial Sugar Refining Co. Ltd. and £68 6s. 8d. the net proceeds of the sale of the goods secured by the Bill of Sale, i.e. a total of £120 5s. 4d.

There will therefore be judgment for the plaintiff for £262 12s. 8d.