civil shinyanga regional trading co limited and another vs national bank of commerce 1997 tzca 42 28 february 1997

IN THE COURT OF APPEAL OF TANZANIA AT NMANZA ( CORAM; MMZAV A S , J. A ., MFAL I L A, J . A , t And LUBUVA, J.A .) CIVIL APPEAL NO. 21 OF 1996 B e t w e e n 1. SHINYANGA REGIONAL TRADING CO. L I M I T E D APPELLANTS 2. NYANZA BOTTLING COMPANY LTD. A n d NATI ONAL Ba NK OF COMMERCE. . . . . . . RESPONDENT ( A p p e a l f r o m t h e J u d g e m e n t and D e c r e e o f the High C o u r t o f T an zan ia a t Tabora) ( M C KANJA, j ° ) dated the 22nd d a y of S e p t e m b e r , 1995 in C i v i 1 C a se No . 26 o f 1994 JUDGEMENT OF THE COURT This appeal is aqainst the ju^qem ^t and d e c r e e of the High Court o f Tarzania at Tabora in which ju d g e m e n t was e n t e r e d in favour ©f th e present respondent, the National Bank o f Co mme rc e. In the Hi^h C o u r t, the National Bank o f Cemmer ce was t h e p la in tiff, Shinyanga R e g io n a l Tracing Company L t d . wa s the firs t defendant and Nyanza B ottlin g Company L t d . was the second defendant. In this appeal, the N ational Bark of Commer ce w ill be referred to as the respondent, Shinyanga Regional Trading Company L t d . as the appellant and N y a n z a B ottling Co mpany L t d , which is not a party in this appeal w ill be referred to as the second defendant. The r e s p o n d e n t ' s claim in th e High C«urt was for a declaration that the sale of the g od o wn on P l o t No. 308 Bleck 'B' m Shinyanga township, executed between th e appellant and the second d0f o nHgrt and i t s subsequent transfer . ../2 2 w as illega l. The r e s p o n d e n t alleged in its plain t that the said g o d o w n was among the properties listed i r. the debenture w h i c h wa s i s s u e d by th e appellant to secure an o v e r d r a f t fa cility amounting to Sh„ 5 0 ,0 00,000/= which it made available to the appellant. But a c c o r ^ i r q to the respondert, when t h e appellant failed to repay the loan w ith in the stipu lated time, it decided to sell the properties listed in the debenture after givin g due n otice. Among th^se oroperties was the said qodown. The sale of the p roperties including the g o do wn was c o n d u c t e d by p u b l i c auction. Follow irg this auction, the respondent averred, the appellant filed a suit in the High C o u rt, C ivil Case No. 18 o f 1994 s e e k i n g among o t h e r reliefs, a declaration that the sale of the godown is ru ll and v o i d . However, according to the respondent, before this case, namely C i v i l Case No. 18 o f 1994 was d e t e r m i n e d , the appellant sold and transferred the godo wn to the second def^rdant, and accor^irg to the resDOn^ent, this sale and transfer of the g od o wn b y th e aopellant to the second d e f e n d a n t was i l l e g a l because: (a) By t h a t time it had already sold the said godown at a public auction and the mone y s o r e a l i s e d was deposited in the a p p ella n t's account. (b) The said sale and transfer betw een the appellant and the second defendant w a s made w i t h o u t notice to it in breach o f the mandatory provisions in the debenture. (c) The said sale and transfer was effected before fin a lisa tio n of C ivil Case No. 18/94. .../3 (d) The said sale and transfer was effected in complete disregard of the caveat filed by the buyer of the property at the p u b lic auction which it organised. In its w ritten statement of defence, the appellant denied that its sale of the goHown to the second defendant wa s u n l a w f u l or illeg a l and that it did not f a i l to repay the loan as a l l e g e d and that in any c a s e no d ue and p r o p e r notice was g i v e n by the respondent b efore the sale «f the qoHown. The appellant further averred that on 1 7 /9 / 9 4 it repaid the en tire loan to the respondent by d e p o s i t i n g the sum o f Sh. 63,5 42,025/25 in its account w ith the respondent as f u l l settlem ent of the outstanding loan before the expiry of the agreed p=riod on 3 0/ 9 / 9 4 and that the second defen dan t's credit note for Sh. 63,542,025/25 is evidence of this transaction. That fo l l o w i n g the deposit of this amount in its account w ith the respondent, it informed the respondent on 2 2/ 9/ 94 to trejt this c r ^ it a s &ettl^me?nt o f the loan oroviHed to t hem b y t h e respondent. On i t s part, the second d e f e n d a n t Senior’ t h a t the sale of the aodown by the appellant wa s i l l e g a l because it was a bona fi^-e- p u r c h a s e r for value w ithout n o tice and t h a t therefore it acquired a good title. .\t t h e c o m m e n c e m e n t of the tria l, thrpp is s u e s were framed as follow s: 1. Whether the sal*^ and tran sfer of the su it prem ises by th<=- f i r s t defenHart to the second defendant was i l l e g a l . ./4 4 2. If the sale was i l l e g a l , whether the second defendant was a bona fide purchaser for value. 3. Whether in the circum stances, the p la in tiff was e n t i t l e d to sell the suit prem ises and w h e t h e r he had title t6 p ass t« the purchaser. The respondent called only one witness in support o f its case; its lega l officer Mr. Make ne na N g e r ^ . He t o l d the trial Court that th ey were requesting the Cburt to n u llify the sale of the godo wn b y t h e first defendant to the second deferdant because th is sale was e f f e c t e d when the same g o d o wn had a l r e a d y been sold by t h e p la in tiff in exercise of its powers as debenture holder under c la u s e 3 of the debenture. This clause, he said, empowered the debenture holder to sell the charged property in the e v e n t of a defau lt in repaying the loan so secured. Kr. Nger^ told the tria l Court that the sale of the godown b y t h e first deferdant to th e second d e f e n d a n t was subsequent to the sale by t h e p la i.'tiff at a public auction on 22/8/94. Mr. Ngero mentioned two o t h e r m a t t e r s which in his view tain ted the lega lity of the sale transaction betw een the two d e f e n d a n t s . These were first, that according t« the terms of the debenture, the b orrow er could not sell or transfer the property so c h a r g e d w i t h o u t the c o n s e p t o f the debenture holder. Secondly, that aft?r the q o d o w r wa s sold by the p la in tiff through a public auction, the first defendant filed a c ivil suit in Court praying for a declaration that the sale by the p la irtiff was i l l e g a l , but before the C^urt determ ined the case, the first defendant went ahead and s»ld the orop»rty to the second defendant. It wa s f o r this reason, he said, that the second defendant cannot claim to be a bona fid e ourchasar for value .../5 5 because he had r o t i c e of the sale of the qodown b y t h e p la irtiff. Or its part, the appellant also ca lled on e w i t r » s s , its erstw hile General Manager, Hamisi Shi 11a K i t o n k a . He t o l d the tria l Court th a t the appellant obtained an o v e r d r a f t fa cility from the respon den t's Manonga b r a n c h in Shinyanga township amounting to Sh. 50,000,000/=. This loan, he said, was secured by a debenture, but he d e n i e d that the debenture had any r e s t r i c t i o n on th e ap p ella n t's right to deal w ith the prop erties so c h a r g e d , saying that the appellant was f r e e to sail any o f these properties provided approval was sought and o b t a i n e d from its Board of D irectors. Mr. Kitonka add e d that the loan plus in terest of Shs. 13m was t o be c l e a r e d by 30/9/94, but in June th^ respondent recalled the overdraft and d e m a r d e d p a y m e n t w ithin 14 d ay S . The a o p e l l a n t requested for “ xt^rsior of time in which to pay. When t h i s request was r e j e c t e d , he said, they had r o altern ative but to sell on e of the a o p e lla rt's properties to raise the required money. It was d e c i d e d to sell one o f the ( j oHowns w h i c h they sold te the second defendant for 60,000,000/=. When, t h i s a mount w a s p a i d on 17/9/94, it was d e p o s i t e d int*» t h e i r account with the respondent to c le a r the overdraft but t h e y were inform ed that the overdraft had b e e n c l e a r e d . They did not krow how t h e overdraft had b e e n cl°ared. In these circum stances, Mr. Kitonka concluded, the sale of the godown t o the second defendant by the appellant wa s p e r f e c t l y legal. After hearing a ll the evidence and the submissions, the learn ed tria l judge answered the first issue in the a ffirm ative, namely t h a t tha sale and. transfer of t he suit prem ises by th e appellant to thr» s e c o n d deferdant was i l l e g a l , because it was c o n t r a r y to the terms o f the debenture which p r o h i b i t e d the . a. /6 a p p e l l a r t ftfA i a l i e n a t i n g any of i t s p r o p e r t y w ith o u t t h e .. co n se n t h i the i^espwndent as the d e b e n tu re h o ld e r excep t » f cfturse in the «r d in a .r v e * u r s e « f i t s b u s in e s s . W ith eegajiri to is s u e f , the le a r n e d ju d g e answered i t ■■A•• iir the w e g a t i r e , nam ely, t h a t the s e e * »d d e fe n d a n t was * * t a b o ra f i d e p u r c h a s e r f m r v a lu e w ith o u t » o t i e e b ecau se the s a le •f the g«p*ipwrr betw een the two was t a in t e d w ith f r a u d . L a s t ly , the l e a » e M t y i a l ju d g e s fs w e r e ^ the t h i r d is s u e i n th e a f f i r m a t i v e , t h a t the resp on d en t had « good t i t l e p as*. In tfce c i r c u s s t a K e t , the le a r n e d jugate entei*ed judgem ent f o r the p l a i n t i f f or. p ra y e d , and, » l s ° d e c la r e d th at the s a l e end t r a n s f e r f e r the g t ^ w n by the a p p e lla n t t » - t h e second d e fe n d a n t was. i l l e g a l , n u l l *nd ▼w.-d. ju d « e a ls o made a • • ^ s e ^ u e n t i a l o r d e r t h a t the r e g i s t e r o f t i t l e s be r e c t ifie d by d e l e t i n g the r e g i s t r a t i o n o f the s e ^ « * < d e fe n d a n t a e >wner t h e r e o f and f u r t h e r t h a t the p u r * h a e e r a t tfc«- p u b li c a u c t i * * lie » e f i s t c r c < i m »Ter /?*>■=t i c n S i (-3) o f the- t a r d R e g i s t r a t io n * r d 1r a n »p *"»> - 3-34. -Chis- d -e *> isi«* a g g r ie v e d Shinyan«m R e § i* n a l Trading. •‘bmpany L im ite d w hich t h e * f i l e d t h i s a p p e a l, the memorandum th ereof »o n s i»tin g mt s ix *a*u *d a « f a p p e a l. B e f# »e d e a lin g w ith the a p p e a l or m e r it s , th e re in * p ^ i n t w hich we f e e l i s *f such im portan ce, though n«*t p a r t . # f t h is appeal ti»at i t sh *u ld )*e d e a lt w ith to avoid i t m is le a d in g th e l w e r Cfurfcs i f n « t the High C o u rt i t s e l f . A t the #«mmeiwemert o f tb= t r ia l, C o u rs e l f o r the d e fe n d a n t s r a if.e d • p r e lim in a r y « b j e c t i « n which i s »• | » « i n t le » # >*t% in f a « t and law t h a t we f e e l the t r i a l ju d g e * h «u ld n » t have expended e » **uch e n ergy and time t r y in g t* 7 resolve it. In his prelim inary objection, Counsel for the defendants urged the Court to dism iss the case against the second d efen d an t because in his view it was w r o n g l y joined. Counsel told the tria l Court that the second defendant was w rongly join ed because the suit in question is founded on t wo u n r e l a t e d contracts. One c o n t r a c t was w h ^ t he c a l l e d a debenture contract und“ r w h i c h t h e respondent advanced Sh. 50m t o the appellant ard that since the second defendant was n o t a party to th is contract, it could rot be sued on i t . The second contract, he submitted, involved the sale of the godo wn b y th<= a p p e l l a n t to the second defendant t o which the r e s p o n d e n t was n o t a party, hence it could not sue on i t . We r e m a r k e d that this objection was p o i n t l e s s both in fact and in la w, because it is cl^ar to anyone reading the p lain t that the r e s p o n d e n t wa s n o t s u i n g on any c o n t r a c t even if there was su c h a t h i n g as a debenture contract or agreement in law. The r e s p o n d e n t was simply c h a lle n g in g the lega lity nf t h e s a l e and tran sfer of p r o p e r t y -over w h ic h it b»liev<?d it had a legal charge. This is the factual position . On t h e lf-gal front, there is no s u c h thing as a debenture contract or agreement in law for th-> s i m p l e reason, that such c o n t r a c t is im possible to mak«. A contract, like tango takes t wo to m a te ria lis e . But a debenture, being sim ply a document i s s u e d by a co mpa ny as evidence of 3,ts i n d e b t e d n e s s which is norm ally secured by a charge over its property, can orly be made and issued b y on e side, namely the borrowing co mpa ny. Therefore, since Counsel was making submissions on p o i n t s whose legal sign ifican ce he did not obviously understand, the judcre should have dism issed the objection in a few lin «s, m ostly » # k in g Counsel to make h im self mor e fam iliar with concepts in c o mp a n y law. U nfortunately, .../0 8 the learned judge went so f a r as t o commend Counsel for what he c a l l e d his "lucid subm issions", and throughout the proceedings and in his judgsm ert, the learned ju dge talks of "debenture agreem ent". If left uncorrect^d it can c r e a t e a wrong i m p r e s s i o n in the lower cou rts that there ara su c h t h i n g s as d e b e n t u r e contracts and agreements in c o mp a n y law. Although the words of C h itty, J. in L o ng v s . Abercorr is State & Slab Co. (1887) 37 Ch. D 260 a t p a g e 264 t o the effect that: "I carrot find a ny p r e c i s e legal defin ition of the term "debenture", it is not eith er in law o r c o m me r c e a strictly technical term o r what is called a term of art" s ound severely p essim istic on th^ meaning and n a t u r e o f debentures, it does rot mean that th e term i s i n c a p a b l e of having a precise meaning or that its meaning i s so e l a s t i c as also to be a species of contract. Of course the rights of the debenture holder are contractual righ ts r< oomp-isny, but thaso contractual righ ts relate to thp agreement fcp l e n d by the lender and to b orrow by the c r e d i t o r . Debentures then are species of documents issued by companies evidencing th eir i n d e b t e d n e s s - w h i c h ^/the i n d e b t e d n e s s / , is norm ally but not n ecessarily secured by a charge over the co m p a n y 's p r o p e r t y . D ebentures which do n o t p r o v id e a charae are called naked debentures. Ir sum t h e n d e b e n t u r e s are a class of secu rities issued by c o m p a n ie s . Having put the legal and factual position on the c o r r e c t footirg, we are now i n a position to deal with the appeal before us. .../9 - 9 - As we h a v e already indicated, the appellant filed a six p oirt memorandum o f appeal, but in our v ie w the con trollin g around is ground No. 3, in which the appellant complained that the learned judge erred on p o i n t of law grd fact in holding that the debenture agreement (sic) Ex. PI is a valid debenture for the 1993/1994 l o a n . We s a y this is the con trollin g ground because the way t h i s ground is determined w ill aff"ct the o utcome of the entire anpeal. On t h i s point, depends th^ determ ination of the question in ground one, that is whether the sale and tran sfer of the q od o wn b y the appellant to the second defendant was l e g a l . It w ill also determine the question in ground 5, that is whether the r e s p o n d e n t was e n t i t l e d to sell the g o d own and p a s s the title to the purchaser. The learned tria l judge made the decision on th^ v a l i d i t y of the debenture w h ile dealing with issue No. 3 w h i c h was wheth-' -r i n the circum stances, the p la in tiff was e n t i t l e d to sell and p a s s title to the purchaser. As a l r e a d y indicated, the learned judge answered this issue in tht; a f f i r m a t i v e holding that the p la in tiff had a good title to pass, but we feel that the first part of the issue which is whether the p la in tiff wa s e n t i t l e d to sell the premises under the terms of the debenture was n o t c l e a r l y dealt with. This question was a su bject of detailed analysis by C o u n s e l for the appellant in his fira l w ritten submissions. In his detailed submissions, learned Counsel stated that the p la in tiff (pr^sfrt respondert) wa s n o t en titled to sell the g o d o wn to recover its loan, because firstly th*-5 r e s p o n d e n t did not have s uch p o w = r u n d e r t h e debenture under which it purportedly acted. Ir law, Counsel stated, the r?medies available to the debenture holder in case of defau lt in the payment of the prin cipal amount n r in terest, . ../10 10 are to s ue f o r the recovery of the outstanding a mo u n t ; to f i l e a petition in Court f o r the w in d in g up o f the company; to exercise any o f the powers c o n fe rr e d by the d e b e n t u r e i.e. appointing a receivr-r or if the debenture does not contain such p o w e r s , the debenture holder nay a c p l y to Court f o r the appointment o f a receiver and/or mahager, or an o r d e r for sale or foreclosu re; Learned Counsel stated fu rther that as the debenture relied upon by the p la in tiff did not con fer on it any p o w e r of sale, it was i n c u m b e n t upon i t to apply to th.. Court f o r an o r H e r of sale. Hence, he concluded, as i t had n either the power of sale under the debenture nor a Court or^er to sell the a o do wn b y p u b l i c auction, the sale effected by the respondent was i l l e g a l , therefore null and v o i d and n*> title was thereby passed. The second reason given by learned Counsel in his submission was that when t h e respondent proceeds.'4 t o auction t h e g o d o w n on 20/8/94, it haH a l r e a d y b e e n sold on 10/8/94 hence there was no su b ject m atter to sell on 2 0 / 1 0 / 9 4 . In these circum stances, he stated, both the auctioneer and purchaser aeted under a mistake of fact as to the existence of the su bject m atter so t h a t under Section 30 (l) of the Law o f C o n tr a c t Ordinance Cap. 433, the resu ltin g contract of sale was v o i d . The learned tria l judge d^alt with the question on the assumption that the respon den t's loan to t l v- appellant wa s still secured by th e debenture and that in sellin g th e godown to recov-r the loan, the r e s p o n d e n t wa s p r o p e r l y exercisin a its professed power of sale. A fter ''iscu ssirg what hap pe ns at a sale by public auction, and as t o when t h e contract is concluded, pointing *ut that such a transaction is su bject . . ./II 11 to the doctrin® of caveat emptor, t he judge corclur'e H as follow s: "This explains why S e c t i o n 51 (1) of the Land R egistration O rdirarce does not require, in cases where property is sold by a lender in the exercise of his professed power of sale, the registrar or purchaser to enquire whether any Hr f a u l t has o c c u r e d i The p o w e r of sale need not be absolute, it is enough t h a t a reasonable mah, prudently investing his money i n land w i l l have reasonable qrounds upon w h i c h to believe that the lender has power to sell the property. In my v i e w s uc h p o w e r is presum'd t» exist where the sale is by p u b l i c auction. The p o w e r to sell or t* be sp ecific, the len der’ s professed power r f sale at the public auction in question is protected by the operation of the doctrine «f estoppel. There are several typ'-s o f estoppel, but estoppel by r e p u t a t io n is m«re relevan t h*?re. By t h i s doctrine, where the owner of property by words o r conduct represents or perm its or perm its it to be r e p r e s e n t e d that another person is the owner o f qoods or other properties, any sale of s uc h property by th a t person is valid against the true owner as if the seller was actu ally the owner t h e r e o f as r e g a r d s anyone buying s uch n r o c e r t y on r e l i a n c e or the r e p u t a t io n . It has also been said that estoppel would arise if th e tru» owner repr.issrts or perm its it to be represented that he had no i n t e r e s t in the goods. In this case that is how D W . l behaved. H» made r o attempt to stop the sale u n til 6 days la ter when he filed a suit in C»urt. He nc e the first defendant -../12 12 is estopped from asserting that the p la in tiff could not pass a good title to the purchaser". In support o f these views the learned ju dge quoted the remarks of O evlin, J. in the English case of D istrib u to r Ltd. vs. Gold r i n g 1957 2 QB 600 a t page 608: "The class «f questions which relate to how f e r a p ' - r s o n who i s not the real owner o f goods, b u t who a p p e a r s to the w orld, or rather to those who d e a l with hi m a s o w n e r ; a r d who d e a l with hi m on the faith of his apparent ownership should be called to c o n f e r upon a t h i r d party a greater title t h a n he h i m s e l f h a s ---------. " find in an e a r l i e r case, Commo nwe al t h T r u s t v s . A k t o y /1926/ A.C . 72, it was d e c i d e d that "if s o me o n e p e r m i t s goods to go into possession of another, with a ll the in sign ia and i n d i c i a of apparnt title, it would be i n c o n s i s t e n t with lega l p rin cip le to perm it the transaction t« be u p s e t " . However the differen ce w ith the presen t case which the learned judge apparently missed is that in th is case the appellant did nrt perm it the premises to go i r t * the possession of the respondent, to the c o n tr a r y , he did not or refused to surrender thr title deeds thereof, and did not register the d e b e n tu r e as required by law. But a s we h a v e already stated, these findings of tihe learned tria l ju^ge were predicated *n the premise that the secu rity provided by the debenture wa s available to the respondent at the time it Hedged to sell the go do wn t* realise the a mo u r t of th^ loan. Ind-ed, pvt the t wo reasons ...A 3 13 given by Counsel for the appellant ir his w ritten submissions on i s s u e No. 3, were based on the same a s s u m p t i o n and throughout the p ro c e e d in q s in the High C o u r t, the case proceeded on t h a t basis. Both sides in the case saw t h e wisdom o f engaging the services of mo r e experienced Counsel to argue th eir respective cases in this Court. In recognizing the talen ts of Counsel on both sides, we w a r t to say that the parties could n o t h a v e made better choices. Both Kr. Rweyemamu who m a r s h a l l e d the appellants’ case, and P r o f e s s o r F i m b o who r e s i s t e d the appeal on b e h a l f of the respondent, left no s t o n e s u n t u r n e d in th eir respective figh ts both at factu al and legal levels. Our w i s h is that such h i g h level performance w i l l b e c o me standard to the greater m ajority of the me mber s o f the Tanzania Bar. In arguing the appeal, Mr. Rweyemamu l e a r n e d Counsel for discarded , . ,, the appellants, ' the premise adopted throughout the tria l both by the tria l Court and C o u n S a l who a p p e a r e d in that Court, that the secu rity provided by th e debenture wa s s till a .«a ila b le t * the resp®ndervt a t t-hp tim e o f the s a l^ o f the godown by p u b l i c auction. Mr . Rweyemamu s u b m i t t e d that as the debenture was n o t registered, the loan extended by the respondent to th e appellant remained unsecured. He add e d that under Section 79 o f the Companies O rd in a n c e , Cap. 212, an unregistered debenture is void against the liqu idator and any cred itor of t h e company. Therefore, he said, the righ ts of the respondent as an u n s e c u r e d creditor, w?is t o demand repayment within 42 d a v s after its loan be c a m e u n s e c u r e d . A fter this period, he said, the respondent could not go back to the debenture and p u r p o r t to e x e r c is e the power of sale under it. The only course open to the respondent as an u n s e c u r e d cred itor, he added, wa s to proceed by way o f ordinary civ il suit to .../14 14 recover its unsscur?^ loar. With rroard to the a llegation that the appellants' sale of the g od o wn to the second d e f e n d a n t wa s tainted w ith fraud, Mr . Rweyemamu s u b m i t t e d that the fraud, if any, could only affect the sale to the second ^ef^ndant if at the time of this sale, the loan advanced by the respondent was s till secured by the debenture. This is because, he c o n t e n d e d , there can be no f r a u d in the sale- to the second defendant i f the debenture no l o n g e r acted as security for the respon den t's loan. With the debenture no l o n g e r in force, he said, the g o d o w n wa s n o t encumbered, with the consequence that th e appellant was free to dispose it in any manner it wished. This freedom, he added, extended to the marner in which the appellant treated the proceeds of such sales. As a corollary to th eir argument, I-lr. Rweyemamu submitted that as the respondert, the debenture holder, ro lon ger had any r i g h t s u nr f e r the debenture, it could not purport to exercise the power of sale under that debenture even if the said debenture provided su c h p o w e r , hence the respondent had no r i g h t to sell the godown, he had no title in the g o d o w n w h i c h he c o u l d pass to any b u y e r . Pr. h i s part, Prof. F i mb o d e a l t with the debenture at three levels. These were th e v a l i d i t y of the debenture at the time th^ respondent decided to auction th« qodown. The powers of the debenture holder and t h e fraudulent acts of the a p p e l l a n t company. With regard to the status of the debenture at the time t h a g o d o w n wa s b e i n g auctioned by t h e respondent, Professor Fimbo submitted that it was s till in force. He c o n c e d e d that the debenture was n o t registered , but added that it was • /15 15 not r e g is tr a b le under Section 8 (2) (d) of the* Registration of Documents O r d in a n c e Ca p . 117 b e c a u s e a debenture does not create a trust, and sub-section (2) (k) of the same O r d i n a n c e excludes all documents relatin g to land from reqistration under the O r d in a n c e . The only law, he said, which r e q u i r e s registration of debentures is the Companies O rd in an ce Cap. 212 under Section 80, and that the consequences o f n o n—r e g i s t r a t i o n are listed in Section 79. But, he added, the only way i n w hich this debenture could be e x t i n g u i s h e d or brought to an e n d was through the conditions in Paragraph 17 b e i n g satisfied and that there is no e v i d e n c e in d icatin g that these conditions were sa tisfied , hence in his submission, the d e b e n t u r e wa s s till subsisting at the time the respondent decided to auction the godown u n d e r i t . Regarding the powers of the debenture holder, Professor Fimbo co n c e d e d that no r e c e i v e r or m a n a g e r was appointed and t h a t under the terms of the debenture, the respon den t could not exercise the power of sale d irectly, b u t he u r g e d this Court to accept the tria l j u d g e 1s j u s t i f i c a t i o n »f the respon den t's d ir e c t exercise of the power of sale, namely that i t was e x e r c i s i n g its professed power o f sale as l e n d e r and that this professed power of sale exercised through a public auction, is protected by o p e r a t i o n of the doctrine of e stoppel. Lastly, regarding th e apoellarts' fraudulent acts, P r o f e s sor Fimb» p a in ted the follow in g picture of the a p p ella n t's conduct and actions which he said w~re fraudulent and that therefore the subsequent sale of the g o d o wn b y the appellant to the second d e f e n d a n t wa s v o i d . He s a i d that the appellant issued a debenture to the respondent on the secu rity o f which . -./*« 16 the respondent len t moneys to the appellant. A fter com pletion of this agreement f o r an o v e r d r a f t fa cility secured by the debenture, the appellan t behaved in the follow in g manner. F irstly, it failed or neglected to register the debenture with the R egistrar of Companies. Secondly, the appellant failed to hand over title deeds to the respondent of the properties charged by the deben tu re. Th irdly, the appellant suffered d istress by the Income Tax D e p a rt m e n t and upon the sal= of its motor v e h i c l e in satisfaction of this distress, the appellant deposited with another bank, CRDB, the proceeds of s uc h sale contrary to the p r o v is io n s of paragraph 4 of the debenture which p r o v i d e d that during the continuance of thet security (the debenture), the r e s p o n d e n t would be appointed and act as the sole banker of th^ appellant. Fourthly, that the appellant fa iled to pay the loan aft^r receivin g notices from the respondent. Lastly, that even after learning of the sale of t h e godown through public aucti«i»; sending its o fficia ls to the auction and inform ing its customer of this sale, the appellant s till went ahead not *n ly with the sale of the g o d o wn to the second defendant, but actu ally proceeded to execute a deed of transfer in its fav»u r. In addition, Prof. F i mb o w e r t on,' a t the hearing of C ivil Case No. 18/94, the appellant committed another act of fraud, in that it concealed from the High C o u r t the act o f transfer of the g o d o wn to the second defendant. By c o n c e a l i n g v ita l inform ation from the C^urt, P r o f e ssor F i mbo s u b m i t t e d , the appellant w-is d e f r a u d i r g it. Quoting a decision of this Court in Mtumwa R a s h i d vs. A b d a l l a h I d d And ^no t h- ^r C i v i l Appeal No. 22 o f 1993, Professor Fimbo a s s e r t e d that a transaction like the one in the present case, which is tainted with fraud, is void and should be set aside. On t h i s p rin ciple, .../17 17 he u r g e d this Court to set asid« the sale ard tran sfer of the godown by the appellant to the secord defendant. In our v ie w , t h “ se strorgly opposed p osition s can only be resolved by the Court applying th--' relevant provisions of the law. The d e b e n t u r e Exbt. PI wa s n r t registered both under the R egistration of Do cume nts O r d i n a n c e Cap. 117 and the Companies O r d i r a n c e Cap. 212. The effect of th is n on-registration according to Mr. Rweyemamu wa s t o render the debenture u neffectual leaving the r e s p o n d e n t 1s l o a n to the a p p e lla n t unsecured. Section 9 of the R egistration of Documents O r d i n a n c e provides as f o l l o w s : "9. No d o c u m e n t o f which the rt-aistration is compulsory shall be effectu al to pass an y l a n d o r . . . .. . render a ny i n t e r e s t therein or c * such lsnd lia b le as security for the payment o f money, or be r e c e i v e d as e v i d e n c e of any d e a l i n g affectin g such land unless and u n t i l it has been registered ." P rof. F i m b o 1s a n s w e r to this was that this provision cannot in valid ate th e d e b e n t u r e because it wa s n o t registrable under Cap. 117 S e c t i o n 8(2) (d) thereof, as it did not c r e a te a trust and that it was also excluded by the provisions of Sub-section (2) (k). We a g r e e , srd that for that reason, the d eb en tu re's effectiven ess cannot be d e t e r m i n e d by Section 9 of the R egistration of Do c u me n t s O r d i n a n c e Cap. 1 1 7. But the d<=>b°rture w a s m o s t c e r t a i n l y com pulsorily reqistrable under the Companies O r d in a n c e . Section 8* thereof provides as f o l l s w s : .../IB 18 "80 (1) - It shall be the duty o f a c o mp a n y t o send to the R egistrar for registration the p a r t ic u la r s of every cherge created by the c o mp an y and of the issu es of debentures of a series, requ iring registration under the last foregoin g Section (S. 79) but reqistration of any s u c h c h a r g e may be effected on the appl i c a t i o n of a ny person i n t e r e s ted t herein. /_emphasis is ours/ (2) Where registration is effected on t h e application of some person o t h e r . t ha n the company, that person shall be en titled to recover from the company t h e amount o f a ny fees properly paid b y hi m to the registrar of the registration . (3) If a n y Company make s d efau lt in sending to the registrar for registration the particu lars of any c h a r g e created by the Company, or of the issues of debentures of a series requiring registration as aforesaid, th en, vrless the registration has been effected on the application of some other person, the Company and e v e r y director, manager, secretary or other person, who i s knowingly a party to the defau lt, shall be liab le to a fin e not exceed in g twenty thousand sh illin gs for every day d u r in g which the defau lt continue s . " ./19 19 And Section 79 p r o v i d e s as follow s: 79 (1) - Subject to the provisions of this part of th is Ordinance, ev =ry charge cr°at;H after the fixed date by a company r e g i s t e r e d in the territory and b e i n g a charge to which th is section applies shall, so f a r as an y secu rity on the company's p r o p e r t y or undertaking is confered thereby, be void against the liqu idator and an y cred itor of t h e co mpa ny, unless the prescribed particu lars of th e c h a r g e , toaether with the instrument, if any, by w h i c h the charge is created or evidence, or a copy thereof verified in the prescribed manner, are delivered to or recovered by the registrar for registration in a ma n ne r r e q u i r e d by this ordinance within forty two d a y s after the date of its creation, but without p reju d ice to ary contractual obligation for repayment of the mone y thereby secured, and when a c h a r a e becomes void under this section the mone y s e c u r e d thereby shall i m m e d i a t e l y b e c o me payable. (2) This section applies to the follow in g charges. (a) A charge for the purpose of securing any i s s u e of d e b e n t u r e s. (f) A floatin q charc" on t h c undertaking or property of t.h<=> c o m p a n y . . . ./20 20 This section then applied to the debenture Exbt. PI issued by the appellant. Professor F i mb o c o n c e d e d that tha debenture Exhbt . PI wa s r e q u i r e d to be r e g i s t e r e d under Section 80 o f the com panie s ordinance and that the relevant pen alties for defau lt are spelt out in Section 79, but he submitted that d esp ite this non c o m p l i a n c e w i t h Section 80, the d e b e n t u r e was still in. f o r c e because, in his submission, the only way i n w hich this debenture could be brought to an end w a s through the realisation of the conditions in paragraph 17 o f th? debenture and that there is no e v i d e n c e that the con dition s ir. t h a t paragraph had b e e n sa tisfied . We a p p r e c i a t e the ingenuity of the argument, but w i t h respect it h a s no va lid ity. A private agrf3f--m?rt c a n n o t replace the c l e a r terns of the law o f the land. No o n e is allowed to c o n t r a c t out o f the law. Sections 80 and 79 o f the Companies O r d i n a n c e , are quite clear as to the registration of charges and t h e consequences of n on -rsgistration , that if the charge is not registered w ithin forty t wo d a y s , it becomes v o i d , ard the loan so secured becoiw s im m e d ia te ly p a y a b le . Therefor, since this deberture w--)s n o t registered under Section 80 w ithin forty t wo d a y s , it be c ame void at the end of that oeriod. The respon den t's overdraft fa cility became u n s e c u r e d , the debenture as it ware passed out of existence. A ll that tbs respondent wa s left with wer° his contractual righ ts to recover the debt under ordinary c i v i l litig a tio n . When therefore the r e s p o n d e n t embarked upon the exercise of its purported power o f sale under the debenture, and sold the godown through a public auction, it had no such r i g h t of sale, it had n« in terest in the godown which it could pass to any b u y e r . The sale of the g o d o w n by the r e s p o n - ^ ^ n t was null and void and t h e r e f o r e no i n t e r e s t passed to the buyer. .../21 21 But e v e n if the debenture Exbt. P I had b e e n properly registered and was v a l i d at the tim e of the sale of the g o do wn by the resnondent, it would make r o d i f f e r e n c e on t h e v a l i d i t y of the sale by the respondent, because, under the debenture the r e s p o n d e n t had no d i r e c t power of sale. A ll that the debenture provided was f o r the appointment o f a receiver in the event of a defau lt. The . r e c e i v e r wo ul d then act in the in terests of both the lender and the borrower. The r e s p o n d e n t could not act as r e c e i v e r under the debenture. As K a t i t i , J ., remarked in a ru ling in C ivil Application No. 18/94 r e l a t i n g to the same subject m atter: "the defendant (present respondent) reserved itself (sic) a blank cheque, to recover its money i . e . appoint its e lf a prosecutor, judge, pass ju^gemont/decree execute the s ame, in itia te the public auction and pocket the p ro ceed s th ereof." In h i s subm ission. Prof. F i mbo was a w a r e o f th is d ifficu lty. As i t ' d i r o t e d e a r l i e r , he c o n c e d e d th a t no r e c e i v e r was a p p o i n t e d in terms of the debenture, nevertheless, he u r g e d this O urt to agree w ith the tria l ju dge’ s ju s t if ic a t io n of the resp on d en t's action, namely, that it was p r o p e r l y exercisin g its professed power o f sale. This may b e so, but if the respondent had any power o f sale, professed or otherw ise, such p o w e r c o u l d only be d e r i v e d from the debenture which spelt out t h e mode o f exercisin g it namely through a receiver duly appointed. The respondent had no d i r e c t power o f sale which it purportedly exercised ir this case. In the circum stances, the respondent had no in terest ir the qodown wh ich it could pass to the purchaser at a public auction. The sale wa s therefore null ard void. But a s we have a lre a d y found, the debenture had — /22 22 a l r e a d y been rendered void a t t K° tir>o o f the sale of the godown b y p u b l i c auction. We t h e r e f o r e agree with t he com plaint in ground 3 of the memorandum o f appeal that the learned tria l judae erred in law and f a c t in holding that the debenture was v a l i d for the 19 9 3/ 9 4 l o a n . It was r e n d e r e d void after forty two d a y s for non-registration. We sai d, e a r l i e r that this wa s t h e con trollin g ground of appeal, because t h e way t h i s ground is resolved would effect the outcome o f the appeal. It would affect the determ ination of the com plaint ir around one namely whether the sale and transfer of th« qo d own b y the appellant to the second defendant was lega l. The tria l judge ruled that it was r o t ir that it was tainted with fraud. But this filin g wa s b a s e d on th<=> p r e m i s e that th« debenture was v a l i d and su bsisting at the time the two sales by the respondent and the appellart were u n d e rta k e n and c o n c l u d e d . Since we h a v e found that the d e b e n t u r e was a l r e a d y v o i d at the time *f the two sales, tt>~ godown was r » t in a r y wa y encumbered as the resp on d en t's loan was u n s e c u r e d , the a p p e l l a r t was f r e e to deal w ith it in a n y ma n n e r i t wished. Th°re could be no fraud in the appellant sellin g its unencumbered property or d epositing the p ro ceed s of a ny s u c h s a l e in a n y bank i t wished, since the debenture which restricted its banking transactions to the r e s p o n d e n t wa s no l o n g e r in existence. Hence the instances of fraud enumerated by P r o f e s s o r F i mb o against the appellant have no r e l e v a n c e . We therefore say that the sale and tran sfer of the go down b y t h e appellart to the second d e f e n d a n t was p e r f e c t l y legal. ./23 23 Our resolution of the c o m p l a i r t i n qround 3 also affectively determ ines the com plaint in ground 5 that is whether the r e s p o n d e n t was e n t i t l e d to sell the g o d o w n and pass the title to the purchaser at the public auction. The learned tria l ju dge found that he had s uc h righ t and title, but we h a v e already held in the c o u r s e of determ inina the com plaint in ground 3 that the respondent was not en titled to sell t h e godo wn and ha d n o title to pass to the purchaser. With these fin din gs, the c o m p la in ts in g r o u n d s 4 and 6 autom atically fa ll away, ground 2 wa s a b a n d o n e d . However, we would lik e to say in connection w ith the com plaint in ground 6 t h a t we agree w ith it. The t r i a l j u d g e was w r o n g to grant reliefs which were n o t . asked for in the pleadings, namely the rectifica tion of th e register and the r e g i s t r a t i o n of the purchase at the public auction. Before we e n d , we w o u l d lik e to p oirt out that the respondent found itself in this predicament la rgely through the ineptitude of its legal department. For instance, how could -the r» apur- » ei v-t - ' s. l o y a l department sit id ly by w i t h o u t m onitoring the secu rity of the loan the respondent had advanced to the appellant? The respondent's legal d e p a r t m e n t was e i t h e r n egligent o r incom petent, for we c a n n o t see how t h e y c o u l d hava fa iled to ensure that the a p p e lla n t complied w ith Section 80 o f the Companies O r d in a n c e , or taken steps them selves and registered the debenture as they a r e empowered b y Sub—s e c t i o n (1) of that ser.tion, because the respondent was surely "a person interested th erein ". After such r e g i s t r a t i o n , the respondent could then have c o m p e l l e d th e appo1 l a n t to comply w it h Section 83 o f t h e Ordiranc^- that is endorsirg the certifica te of registration on the debenture. .../24 24 The resu lt of our f i n d i n g s or ground s 1, 3 ar^ 5 is that this appeal succe=ds. We a l l o w the appeal and set aside the judgement and o r - ^e r o f the High C o u r t . The appellant w ill have its costs of this appeal an--’ those in the Court bolow„ We a l s o allow costs for two C o u n s e l as w e l l as the preparation of the record because if t h? record was d e f e c t i v e or incom plete, the rules allowed the respondent to f i l e a supplementary record. The costs so incurred would then be c o n s i d e r e d . DATED AT DAR ES SALAAM T H I S 28TH DAY OF- FEBRUARY, 1997 N.S. MNZAVAS P -P t'-./ 'X JUSTI CE OF APPEAL --- < 5^ • t i: 'L.M. KFALILA JUSTI CE OF APPEAL -/ ■/ D.Z. LUBUVA JUSTI CE OF APPEAL I certify that this is a true copy of the origin al DEPUTY REGI STRAR