shinyanga regional trading co limited and another vs national bank of commerce 1997 tzca 35 28 february 1997

IN THE COURT OF APPEAL OF TANZANIA AT mwanza ( CORAM: MNZAVAS, J . A ., MFALILA, J .A .. And LUBUVA, J .A .) C I V I L APPEAL NO. 2 A OF 1 9 9 6 B e t w e e n 1. SHIN YAT- GA REGIONAL TRADING CO. L I MI TED APPELLANTS 2. NYANZA BOTTLING COMPANY LTD. A n d NATIONAL 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 t h e H i gh C o u r t o f T a n z a n i a a t Tabora) (MACKANJA, J o) dated the 22nd d a y o f September, 199 5 in C ivil C a s e No . 26 e f 1994 JUDGEHEN T OF THE COURT MFALILA, J .a. : This appeal is aqainst the judgem ent and d e c r e e of the High C o u r t o f T arzaria at Tabora in which ju d g e m e n t was e n t e r e d in favour ©f the p r e s e n t respondent, the N ational Bank o f Commerce. In the Hi^jh C o u r t , the N ational Bank o f Cc mm er c e was t h e p la in tiff, Shinyanga R e g io n a l T r a c i n g C o mpa ny L t d . w as th<= f i r s t defendant and N ya n z a B ottlin g Company L t d . was the second defendant. In th is appeal, the N ational Ba r k o f Co mm e r ce w ill be referred to as the respondent, Shinyanga Regional Trading C o mpa ny L t d . as the appellan t and N y a n z a 3 o t t l i n g C om p a ny L t d , which is not a party in th is appeal w ill be referred to as the second defendant. The r e s p o n d e n t ' s c l a i m in the High C « u r t was f o r a declaration that the sale of the godown on P l o t No. 308 Bleck ' B' in Shinyanga township, executed between the appellant and the second defendant and i t s subsequent transfer . . ./ 2 2 was i l l e g a 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 t h e p rop erties listed in the debenture w h i c h was i s s u e d by the appellan t to secure an o v e r d r a f t fa cility amounting to Sh = 5 0 , 0 0 0 , 0 0 0 / = which it made a v a i l a b l e to the app ellan t. But a c c o r d i n g to the respondent, when t h e app ellan t fa iled to repay the loan, w i t h i n the stipulated tim e, it decided to sell the p rop erties listed in the debenture after givin g due n otice. Among t h e s e D r o p e r t i e s was the said qodown. The sale of the p rop erties in clu d in g the godown was c o n d u c t e d by p u b l i c auction. F ollow irg th is auction, the respondent averred, the app ellan t filed a suit in the H i gh C o u r t , C ivil Case No. 18 o f 1994 seeking among o t h e r reliefs, a declaration that the sale of the godown is null and v o i d . However, according to the respondent, before th is 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 app ellan t sold and transferred t h e godown. to the second defendant, and according to the r^sD oM ent, th is sale anH transfer of the godown by the aD pellant 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 go do wn at a public auction and the money s o r e a l i s e d was deposited in the a p p e lla n t's account. (b) The sa i d sale ard transfer between the app ellart anH t h = second defendant w a s made w i t h o u t n otice to it in breach of the mandatory provision s in the debenture. (c) Th e said sale and transfer was effected before fin a lisa tion of C ivil C a s e No. 18/94. . . «,/3 3 (d) The said sale and transfer was effected in com plete disregard of the caveat file d by the buyer of the p r o p e r t y at the p u b lic auction which it organ ised. In its w ritten statement o f defence, the app ellan t denied that its sale of the godown 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 le g e d and that in afty C a s e no d u e and p r o p e r notice was g i v e n by the respondent before the sale «f the godown. The appellant further averred t h a t on 1 7 /9/94 it repaid the rn tire loan to the respondent by d e p o s i t i n g the sum o f Sh. 63,542 ,025/25 in its account w ith the respondent as f u l l settlem ent of the ou tstanding loan before the e x p i r y of the agreed p eriod on 3 0 /9/94 and that the second d e fe n d a n t's credit note for Sh. 63,542 ,025/25 is evidence of th is tran saction . That f o l l o w i n g the d e p o s i t of th is a mo un t in its accou n t w ith the respondent, it inform ed the respondent on 22/9/94 to trejt this credit as settl-em ent o f the loan provided to t hem b y t h e respondent. On i t s part, the second defendant denied that th<= s a l e of the aodown by th e a p p e l l a n t was i l l e g a l because it was a b o n a fid*-- p u r c h a s e r f o r valu e w ith ou t n o t i c e and t h a t therefore it acquired a good title . »it t h e •commercement o f the tria l, thre<= i s s u e s w e r e framed as follow s: 1. Whether the saL*^ and transfer of the su it prem ises b y th<= f i r s t defpn^ant 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 defendart was a b o n a 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 to p ass t* the purchaser. The r e s p o n d e n t called only o ne w itness in support o f its case, its legal officer Mr. Makenena N q e r o . He t o l d the trial Court that th e y were requesting the Court to n u llify the sale of the godown by th e first defendant to the second deferdant because th is sale w as e f f e c t e d when the same g o d o w n h a d a l r e a d y been sold by th e p la in tiff in exercise of its powers as debenture h old er under c la u s e 3 of the debenture. This c l a u s e , 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 . Ngero told the trial Court that the sale of the godown by th e first deferdart to the second d e f e n d a n t was subsequent to the sale by th e p l a i n t i f f at a pu blic auction on 2 2 /8 /9 4 . Mr. Ngero m entioned two o t h e r m a t t e r s w h ich in his view tainted the legality of the sale tran saction between the two d e f e n d a n t s . These were first, that according t« the terms of the debenture, the borrower could not sell or transfer the property so ch a r g °d w ith o u t the c o n s e r t of the d eb en tu re h*»l^er. S econdly, that after the g o d o w n was sold by th e p la in tiff through a public auction, the first defendant filed a civ il suit in Court praying for a declaration that the sale by the p la in tiff was i l l e g a l , but b e fo r e the Court determ ined the case, the first defendant went ahead and s«ld the property to the second defendant. It wa s f o r this reason, he said, that the second defendant cannot cla im t o be a bona fide purchaser for valu e . . ./5 5 because h e had n o t i c e of the sale of th e qodown b y t h e p l a i n t i f f . Or its part, the appellant also ca lled one w i t n e s s , its erstw hile General Manager, Hamisi Shi 1 1 a K i t o n k a - He t o l d the trial Court th a t the appellan t obtained an o v e r d r a f t fa cility from the re sp o n d e n t's Manonga b r a n c h in Shinyanga township amounting to sh. 5 0,000 ,000/= . This loan, he said, was secured by a d e b e n t u r e , b u t he d e n i e d that the debenture had any r e s t r i c t i o n on the a p p e lla n t's right to deal with the p r o p e r t i e s so c h a r g e d , saying t h a t the appellant was f r e e to sail any o f these p rop erties provided approval was s o u g h t and o b t a i n e d from its Board of D irectors. Mr. K i t o n k a ad^ed 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 the respondent reca lled t h 63 o v e r d r a f t and d em a n d e d p a y m e n t w ith in 14 ^ a y s . The a p p e l l a n t requested for '-xt^ n sior of time in which to pay. When t h i s request was r e j e c t e d , he said, t h e y had n o a l t e r n a t i v e but to sell one of the a p p e lla n t's prop erties to ra ise the required money. It was d e c i d e d to sell o ne of the qo^owns w hich they sold to the second defendant for 6 0 ,0 0 0 ,0 0 0 /= . When t h i s am ou n t 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 l e a r the o v e r d r a f t but th e y were inform ed that the o v e r d r a f t had b e e n c l e a r e d . They d i d not know how t h e overdraft had b e e n c l e a r e d . In these circum stances, Mr. Kitonka con clu d ed, the sale of the q o d ow n to the second defendant by the a p p e l l a n t was p e r f e c t l y legal. A fter hearing a ll the evidence and the subm issions, the learned tria l judge answered the f i r s t issue in the a ffirm ative, namely t h a t the sale and transfer of t he s u it prem ises by the app ellan t to the second defendant wa s i l l e g a l , because it was c o n t r a r y to the terms o f the deben tu re which p r o h i b i t e d the . ../6 6 • ap pellan t from alien stin q any its prop erty w ithout the - - corfeent •£ the- respondent as the debenture h o ld e r except *f course in the A rdinarv e * u rs e « f its business. s I \ W ith reg a jft t * i s s u e 2^ the le a r n e d ju d ^ e answ ered i t if* t&e l> eg a tiV e, n am ely, t h a t t&e fceJrih* de^enAartt v a s p<«t I I b6fi!!r £ i d e ^ u i ^ h a s e ^ f * r Y a l u & w i t A « u t ES>ti£e h e e a u s e the sale *f the between the t w o wait t a i n t e d w ith frau4. L astly, the lea^ e^ t*ial judge afswere^ the third v issu e in the fc£firm ative, t h a t the respondent had a g o o d t i t l e t » pafckv I n t'fce c i r c u ^ t n i c e e , the learn ed ju **e entei«ed judgem ent ^or the p la in tiff as prayed, and, als® d e cla re d that- the sale transfer fe r the gt^twr the app ellan t t«-th e second d e f e n d a n t was. i l l e g a l , null and r % i 4 . T^e ju *«e ulso marfe a • ♦ * s e # j u e n t i a l order that the roister of title ? be rectified by d e le t in g the registra tion of the sereH defendant ar w n e r thereof an^ f u r t h e r that t h e ■tur»ha*w** at t k o p u b l i c a u c t . i * * be r - e f i s t e r e d muter S e c t i o n 61 (-J.) «*f t h e L a r d R e g is tra tio n »rd 1i»3n »p Cap. 3 1 4 , This- r*e**isi«* a g g r i e v e d Shinyar«t« R e g i o n a l Tr«din§ fompany L im it e d w h ich the* f i l e d this appeal, t h e memorandum th e r e o f *orrsi*tin§ mf six wa^u**® « f appeal. Bef#*e d e a lin g w ith the appeal on m e r i t s , there i« * p * i r t w h i c h we f e e l is mf such im portance, th**u*jh n o t p a r t . # f th is appeal **at i t sh»ul<» he d e a l t w i t h to avoid it m isleading the l#w er c o u r ts if n«t the Hi^h C * u r t i t s e l f . At the f^mm eweraert o f the tria l, Counsel f o r the defendants raised a prelim in ary a b je ctio n which is s<v jM »in tless in fa«t and l a w t h a t we f e e l the tria l judge - *h«uld n * t have expended s» »u ch energy an^ t i m e trying t« • •. / 7 resolve it. In h i s prelim in ary o b je c t io n , Counsel for the d e fe n d a n ts urged the Court to dism iss the c a s e a g a i n s t the second defendant b-cause in his view it was w r o n g l y join ed. Counsel told the tria l Court that the second defendant was w rongly join ed because the su it 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 a t h<= c a l l e d a debenture contract under which the respondent advanced Sh. 50m t o the app ellan t and that sirce the second defendant was n o t a party to th is contract, it could n o t be sued on it. The second contract, he subm itted* involved the sale of the godown b y t h ° appellan 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 it. We r e m a r k e d that th is objection was p o i n t l e s s both in fact and in law, because it is cl^ ar to anyone reading the plain t that the r e s p o n d e n t was n o t s u i n g on an y c o n t r a c t even i f there was such a thinq as a debenture contract or agreement in law. The r e s p o n d e n t was sim ply c h a lle n g in g the lega lity the sale and transfer 'if p r o p e r t y o v e r which it believed it h ad a l e g a l charge. This is the factual p osition . On t h e l^gal fron t, there is no s u c h thing as a debenture contract or agreement in law for the sim ple reason th at such c o n t r a c t is im possib le to mak^. A contract, lik e tango takes two t o m a t e r i a l i s e . But a debenture, being sim ply a document issu e d by a company as evidence of its indebtedness which is rorm ally secured by a charge over its property, can orly be made and issued by one side, namely the b o rro w in g company. T herefore, since Counsel was making subm issions on p o i n t s whose legal sig n ifica n ce he did not obviou sly understand, the judge should have dism issed the ob jection in a few lin es, m ostly a#king Counsel t o make him self mo r e f a m i l i a r with c o n c e p ts i n company law. U n fortun ately, - 8 - the learned judge w?nt so far as t o commend C o u n s e l for what he c a l l e d his "lu cid subm issions", ard throughout the proceedin gs and ir his judgem ent, the learned judge talks of "debenture agreem ent". If left uncorrect’ d it can c r e a t e a wrong im p r e s s io n in the lower c o u r t s that there are such things as deb en tu re contracts and agreements in company la w . Although the words of C h itty,J. in Lo n g v s . Abercorr is S ta te & Slab Co. (1887) 37 Ch. 02 6 0 at oage 2 64 t o t h e effect that: "I carrot find an y precise legal d efin ition o f the term "debenture", it is rot eith er in law o r commerce a strictly technical term o r what is called a term of art" sound sev-erely p e s s i m i s t i c o n t h e m e a n i n g and n a t u r e o f debentures, it does rot mean t h a t the te rr is incapable of having a precise m eanirg or that its meaning i s so e l a s t i c as a l s o to be a sp ecies of contract. Of courser the rights of the debenture holder are contractual L i y i i t c o^aii-a l. -u t-* but thcso' r u r t i'a c t u a l righ ts relate to the agreement fcp l e n d by the len der and t o borrow by th e c r e d i t o r . Deber.tur&s th en are sp ecies *f documents issu e d by com panies e v id e n c in g th <? ir i m ' e b U v h w a s w h i c h iiK 'ebted resjs/, is norm ally but not n ecessa rily secured by a charge over the company’ s o r o p e r t y . l>»be'i)t«r*»s w h i c h d o n o t p r o v i d e a charge are called naked ^be-rtures. In sum t h e n d e b e n t u r e s are a class of secu rities issued by com panies. Having p u t t he legal and factu al p osition on the c o r r e c t footin g, we a r e now i n a p osition to deal w ith the appeal befsre us. .../S - 9 - As we h a v e already indicated, the a p p e l l a n t filed a six p o i n t memorandum o f appeal, but in our view the con trollin g around is ground No . 3, in which the a p p e lla n t com plained that the l e a r n e d - ■judge; erred on p o i n t of law ard fact in holding that the debenture agreement (sic) Ex. PI i s a valid debenture for the 1993/1994 loan. We s a y th is is the c o n t r o l l i n g ground because the way t h i s ground is determ ined w ill affect the outcome of the en tire appeal* On t h i s point, depends the determ ination of the question in ground onej that is whether the sale and trdnsfer of the qodown by the appellan t to the second defendant was l e g a l . It w ill also determ ine the question in ground 5, that is whether t h e r e s p o n d e n t wa s e n t i t l e d to sell the godown and p a s s the title to the purchaser. The learned tria l j u d g e made the decision on th<=> v a l i d i t y of the d eb en tu re w h ile dealing with issue No. 3 w h i c h was whether in the c i r c u m s t a n c e s , the p la in tiff was e n t i t l e d to sell and p a s s title to the p u rch a se r. As a l r e a d y indicated, the learned judge answered this issue in the affirm ative holding that the p la in tiff had a good title to pass, but we feel that the first part of the issue which i s whether the p la in tiff was e n t i t l e d to sell the p r e m is e s under the terms of the d e b e n t u r e was n o t c l e a r l y dealt w ith. This question was a su bject of d eta iled analysis by C ounsel for the app ellan t in his fin al w ritten subm issions. In h i s d eta iled su bm issions, learned Counsel stated that the p l a i n t i f f (present respondert) w as n o t en titled to sell the godown to recover its loan, because firstly th*-- r e s p o n d e n t d i d n o t have such pow=r u n d e r t h e debenture under which it purportedly acted. In law, Counsel stated, the rem edies available to the debenture holder in case of defau lt in the payment o f the prin cip al a mo u n t n r in terest, . .„ / l 0 10 are to sue f o r the recovery of the outstanding amount; to f i l e a petition in Court f o r the w inding up o f the company; to exercise any o f the pow ers c o n f e r r e d by the d e b e n t u r e i»e. appointin g a receiver or if the debenture does not contain such p o w e r s , th" debenture h older -nay a p p l y to Court f o r the appointm ent o f a receiver a n d /o r manager, or an o r d e r for sale or foreclosu re; Learned Counsel stated fu rth er that as the debenture relied upon by the p l a i n t i f f did not con fer on it any p o w e r o f sale, it was i n c u m b e n t u p o n i t to apply to th::- C o u r t f o r an o r d e r of sale. Hence, he c o n c l u d e d , as it had n e i t h e r the power of sale under the debenture nor a Court order to sell the qoHown 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 se eo nH reason given by learned Counsel in his s u b m i s s i o n was t h a t when t h e respondent p r o c e e d ^ to auction the godewn on 2 0 /8 /9 4 , it had a l r e a d y b e e n sold on 10/8/94 hence there was n o s u b je c t m atter to sell on 2 0 / 1 0 / 9 4 . In these circum stances, he stated, both th^> a u c t i o n e e r and purchaser acted under a m istake of fact as to the existen ce of the s u b je c t matter so th a t under Section 30 (1) of the Law o f C o n tr a c t Ordinance Cap. 433, the r e s u l t i n g contract of sale w a s v*>id. The learned trial judge d e a lt with the qu estion on. t h e assum ption that the re sp o n d e n t's loan to the app ellan t was still secured by the debenture and that in sellin g th e godown t o recover the loan, the r e s p o n d e n t was p r o p e r l y exercisin a its professed power o f sale. A fter discussing what h a p p e n s at a sale by p u b l i c auction, and a s t o when t h e contract is con clu ded, pointing »ut that such a transaction is su bject . . . / l l 11 to the doctrine of c a v e a t emptor, t he judge co n clu d e d as follow s: "This explains why S e c t i o n 51 (l) of the Land R egistration Ordinance does not requ ire, in cases where p r o p e r t y is sold by a lender in the e x e r c i s e of his professed power o f sale, the registrar or purchaser to enquire whether any default has o c c u r e d . The p o w e r o f sale need not be absolu te, it is enough t h a t a reasonable man, prudently in vestin g his money i n land w i l l have reasonable grounds upon w h i c h to believe that the lender has power to sell the property. In my v i e w such power i s presumed 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 le n d e r 's professed power t f sale at the p u b l i c auction in question is protected by the operation of the doctrine «f estoppel. There are several types of estop pel, but estoppel by r e p u t a t io n is m*re relevant here. By t h i s doctrin e, where the owner of p r o p e r t y by w ords o r conduct represen ts or perm its or perm its it t o be represented that another person is the owner o f goods or other p rop erties, any sale of such property by t h a t p e r s o n 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 such p r o p e r t y on r e l i a n c e or the r e p u t a t i o n . It has also b e e n said that e s t o p p e l would arise if the true owner r e p r e s e n t s or perm its it to be represented t h a t he had n o i n t e r e s t in the goods. In this case that is how DW.1 behaved. He made no a t t f j m p t to stop the sale u n til 6 days later when he f i l e d a suit in C»urt. Hence the f i r s t defendant 5t 12 is estopped from asserting that the p la in tiff could not pass a good title to the purchaser". In support of these view s the learned judge quoted the remarks of D evlin, J. in the E nglish case of D istrib u to r Ltd. vs. Goldrin q 1 957 2 QB 6 0 0 at page 608: "The c l a s s if questions which r e l a t e to how f a r a p e 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 orldj or rather to t h o s e who d e a l w ith hi m a s o w n e r ; and who d e a l w i t h hi m on the f a i t h of his apparent ownership should be c a l l e d to c o n f e r upon a third party a greater title than he h i m s e l f h a s ---------- rind in an e a r l i e r case, C o m mo n we al t h T r u s t v s . Aktoy / 1 9 2 6 / A.C. 72, it was d e c i d e d that "if someone p e r m i t s goods to go i n t o p ossession of another, with all the in sign ia and i n d i c i a of apparent title, it would be i n c o n s i s t e n t w ith legal prin cip le to perm it the transaction t» b e u p s e,t " . However the differen ce w ith the present case which the learned judge a p p a re n tly m issed is th a t in th is case the appellan t did net perm it the prem ises to go i r t * the p ossession of the respondent, to the c o n t r a r y , he d i d not or refused to surrender the title deeds thereof, and d i d not register the debenture as required by law. But a s we h a v e already stated, these findings of t:he learned trial judge were p r e d i c a t e d *n the p r e m i s e that the secu rity provided by the debenture was available to the respondent at the time it decided to sell the g o d own tr> rea lise the amourt of the loan. Indeed, e v ar the t wo reasons . - ./1 3 13 given by C o u n s e l for the a ppellan t in his w ritte n subm issions 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 r o c e e d in a s in the High C o u r t , the case proceeded on that b a sis. Both s i-’ es in the case saw t h e wisdom o f engaging the services of mo r e e x p e r i e n c e d Counsel to argue th eir respective cases in th is Court. In r e c o g n i z in g the talen ts of Counsel on both sides, we w a n t to say th a t the p a r t i e s could n o t h a v e made better ch oices. Both Mr. Rweyemamu who m a r s h a l l e d the app ellan ts' 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 resp ective figh ts both at fa c tu a l and legal levels. C ur w i s h is that such h ig h level perform ance w ill become standard to the greater m ajority of t h e me mb er s o f the Tanzania Bar. In arguing the appeal, Mr. Rweyemamu l e a r n e d Counsel for discarded the aD pellants, ' the prem ise adopted throughout the trial both by the trial Court and C o u n s e l who a p p e a r e d in that C ourt, that the secu rity provided by the debenture was still a vailable t» the respondent at the tim e o f the sale of 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 the app ellan t remained u n s e c u r e d . He a d d e d that under Section 79 o f th e Companies O r d in a n c e , Cap. 212, an unregistered debenture is void against the liqu id a tor and an y creditor of the company. Therefore, he said, the righ ts of the respondent a s an u n s e c u r e d cred itor, w3 s t o demand repayment w ithin 42 d a y s after its loan became u n s e c u r e d . A fter th is 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 o f sale under it. The o n l y c o u r s e open to the resp on d en t as an u n s e c u r e d creditor, he added, was to proceed b y w ay o f ordinary civ il suit to . „ ./1 4 - 14 - recover its unsscur?^ loan. W ith regard to the a llega tion that the app ellan ts' sale of the godown to the second d e f e n d a n t was 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 defendant if at the time o f th is sale, the loan advanced by the respondent wa s still secured by the d e b e n tu re . 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. re sp o n d e n t's loan. With the d e b e n tu r e no l o n g e r in force, he said, the g o d o w n wa s n o t e n c u m b e r e d , with the con sequ en ce that the app ellan t was f r e e to dispose it in any m a r k e r it W ished. T his freedom , he added, extended to the m an n e r i n which the app ellan t treated the proceeds of such sales. As a c o r o l l a r y to th eir argument, Mr. Rweyemamu s u b m i t t e d that as the respondertj the debenture holder, no longer had anjf r i g h t s unHer the debenture, it could not purport to exercise the power o f sale under that debenture even if the said debenture provided such power, hence t he respondent h ad no r i g h t to sell the godown, he h ad no title in the g oij own w h i c h he c o u l d pass to any b u y e r . On h i f part, P £ £ f ; _F i m b o d e a l t with the d e b e n tu r e at three lev^Js. These were the v a l i d i t y of the debenture at the time the f e s p o r d e n t decided to auction t h rt q o d o w n . The powers o f the debenture holder arH t h e frau du len t acts of the a p p e l l a n t company. W ith regard to the status of the debenture at the time t h e g o d o w n was b e i n g auctioned by t h e respondent, P rofessor Fimbo s u b m it t e d that it was still in force. He c o n c e d e d that the deben tu re wa s n o t registered , but added that it wa s •/ 1 5 15 not r e g is tra b le under Section 8 (2) (d) of the R egistration of Documents O rd in a n ce Cap. 117 b e c a u s e a debenture does not create a trust, and su b -section (2) (k) of the same O r d i n a n c e exclu d es a ll documents relatin g to land from registra tion under the O rd in an ce. The o n l y law, he said, which requires reg istra tion of debentures is the Companies O rd in a n ce Cap. 212 under Section 80, and that the consequences o f n on -registration are listed in Section 79. But, he added, the only way i n which th is debenture could be e x t i n g u i s h e d or brought to an e n d was t h r o u g h the c o n d i t i o n s in Paragraph 17 b e i n g satisfied and that there is no e v i d e n c e in dicatin g that these con dition s were satisfied, hence in his subm ission, the debenture w as still su bsistin g at the time the respondent decided to auction the godown u n d e r i t . Regarding the p ow ers of the debenture holder, P rofessor Fimbo c o 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 th a t under the terms of the debenture, the respondent could not exercise the power o f sale d irectly, b u t he u r g e d th is Court to accept the trial ju d g e 's ju stifica tion mf the r e sp o n d e n t's direct exercise of the power o f sale, namely that i t was e x e r c i s i n g its professed pow^r o f sale as le n d e r and t h a t this professed power of sale exercised through a public auction, is protected by o p e r a t i o n of the doctrin e pf e stop pel. L astly, regarding the app ellarts' fraudulent acts, P rofessor Fimb« p a in t e d the f o l l o w i n g picture of tfte appellant-’ s conduct and actions w h i c h he said w ~r e f r a u d u l e n t end that th erefore the subsequent sale of the godown by the appellant to the second d e f e n d a n t was v o i d . He s a i d that th? app ellan t issu ed a debenture to the respondent on the security o f which .../16 16 the respondent lent moneys to the app ellan t. A fter com pletion of th is agreement f o r an o v e r d r a f t fa cility secured by th e debenture, the a p p e l la n t behaved in the follow in g manner. F irstly, it fa iled or n eglected to reg ister the debenture with the R egistrar o f Companies. Secondly, the app ellan t fa ile d to h an d o v e r title deeds to the respondent of the prop erties charged by th e d e b e n t u r e . T hirdly, the app ellan t suffered distress by the Income Tax D e p a r t m e n t and u p o n the sel° of its motor v e h i c l e in satisfa ction of th is d istress, the appellan t deposited with a n o th e r bank, CRDBr t h e proceeds of such sale contrary to the p r o v i s i o n s o f paragraph 4 of the debenture which p r o v id e d th a t during the c o n t in u a n c e of that secu rity (the debenture), the r e s p o n d e n t would be appointed and act as the sele banker of thf= app ellan t. Fourthly, that the app ellan t fa iled to pay the loan after receivin g n otices from the respondent. L astly, that even after learn in g of the sale of t h e godown through public auction; sending its officia ls to the auction and in form ing its custom er of th is sale, the app ellan t still went ahead n o t on ly w ith the sale of the godown t o the second defendant, but actu ally proceeded to execute a deed of transfer in its favour. In add ition , P rof. F i m b o we r t on, at the hearing of C ivil C a 3e N o . 18/94, the a p p e lla n t committed another act of fraud, in that it concealed from the H iq h C o u r t the act o f transfer of t h e qo^own to the second defendant. By c o n c e a l i n g v ita l inform ation from the Court, P rofessor F i mbo s u b m i t t e d , the a p p e l l a n t was d e f r a u d i n g it. Q uoting a decision of th is Court ir Mtumwa R a s h i d v s. Ab d a l l a h I d d And A r o t h e r C i v i l A ppeal No. 22 o f 1993, Profe s s o r Fimbo a s s e r t e d that a transaction like the o ne in the present case, which is tainted with fraud, is void and s h o u l d be s^t aside. On t h i s p rin cip le, . . ./17 17 l.c u r g e d th is Court 'to set aside the? sale and t r a n s f e r of the qodown by the a p p e l l a n t to the second defendant. In cur view , these strorgly opposed position s can only be resolved by t h e Court applying the relevant provisions of the law. The d e b e n t u r e Exbt. P 1 was n r t registered both under the R eg istration of Documents O rd in a n c e Cap. 117 and the Companies O rd in a n ce Cap. 212. The e f f e c t of th is n on -registration according to l^r. Rweyemamu was t o render the debenture u n e ffe c t u a l leaving the re sp o n d e n t's loan to the app ellan t unsecured. Section 9 of t he R egistration of Documents O rdinance provides as f o l l o w s : "9. No d o c u m e n t o f which the reg istra tion is com pulsory shall be effectu al to nass an y l a n d o r . . , ,, . render any i n t e r e s t therein or f < such lsnd lia b le as security for th e payment o f money, or be received 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 reg istered ." P rof. F i r> b o ' s answer to t h i s was that th is provision cannot in va lida te the d e b e n tu r e because it wag n o t registra b le under Cap. 117 Section 8(2) (d) thereof, as it did not c r e a te a trust and that it wa s also excluded by the p rovision s of Su b-section (2) (k). We a g r e e , and that for that reason, the d eb e n 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 Documents O r d i n a n c e Cap* 117. But the d e b e n t u r e was m ost c e r t a i n l y com pulsorily registra b le under the Companies O r d i n a n c e . Section 8® t h e r e o f provides as f o l l o w s : . «. . / i n 18 "80 (1) - It shall be the duty o f a company t o serd to the R egistrar for reg istra tion the p a r t i c u l a r s of every ch'-rge created by t h e c o m p a n y and o f the issues of debentures of a series, requ irin g registra tion under the last foregoin g S ection (S. 79) but reaistration of an y s u c h c h a r g e may be e f f e c t e d on the a p p lica tion of an y person in terested therein, ^/emphasis is ours/ (2) W h e re r e g i s t r a t i o n is effected on t h e application of some person other than the company, that person shall be en titled to recover from the company th e amount o f any fees p rop erly paid b y him t o the registra r of the reg istration . (3) If a n y Company mak es d efau lt in sending to the registrar for registra tion the p articu lars of any c h a r g e created by t h e Co mp a ny , or of the issu es of debentures of a series requiring registra tion as aforesaid, then, unless the reg istra tion has been effected on the app lication of some o t h e r person, the Company and e v e r y d irector, manager, secretary or other person, who i s know ingly a party to the defau lt, shall be lia b le to a fine not exceedin g twenty thousand sh illin g s for every day du rin g which the default continue s . " ./1 9 19 And S e c t i o n 79 p r o v i d e s as f o l l o w s : 79 (1) - Subject to the provision s of th is part of th is Ordinance, ev=ry charge create after the fixed date by a compary registered 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 security on the com pany's p r o p e r t y or un dertakin g is confered thereby, be void against the liqu id a tor and a ny cred itor of th e company, unless the prescribed particu lars of the c h a r g e , together w ith the instrum ent, if any, by w h ic h the charqe is created or evid en ce, or a copy thereof v erified in the p r e s c r i b e d manner, are delivered to or recovered by the registra r for reg istra tion in a m an n e r r e q u i r e d by th is ordinance w ithin forty two d ay S after the date of its creation , but w ithout p r e ju d ice to any c o n t r a c t u a l obligation for repayment o f the m o ne y thereby secured, and when a c h a r o e becomes void under th is section the money s e c u r e d thereby shall i m m e d i a t e l y become payable. (2) This section applies to the follow in g charges. (a) A charge for the purpose of securing ary is s u e of d eb en tu re s. (f) A floa tin g charq" on t h e undertaking or property of the company. . ./2 0 20 This section then applied to the debenture Exbt. PI issu ed by the appellan t. Pro fe s s o r Fimbo c o n c e d e d that the debenture Exhbt . P I was 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 panies ord in a n ce and that the relevant pen alties for default are sp elt out in Section 79, but he subm itted that d e sp 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 w as still in force because, in his su bm ission , the only way i n w h i c h th is debenture could be b r o u g h t to an end w a s t h r o u g h t h e realisation of the conditions in paragraph 17 o f the debenture and t h a t there is no e v i d e n c e that the con dition s in that p a r a g r a p h 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 ith r e s p e c t it h a s no v a lid ity . A private agreement can n ot replace the c l e a r terms of the law o f the land. Mo o n e is allow ed 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 cl^ ar as to the reg istra tion of charges and t h e consequences of n on -registration , that if the charge is not registered w ithin forty two d a y s , it becomes v o i d , and the loan so secured becomes im m ediately p a y a b le . T herefor, since th is d e b e n t u r e was n o t registered under Section 80 w ith in forty two d a y s , it b ec a me void at the end of that period. The r e s p o n d e n t ' s overdraft fa cility became u n s e c u r e d , the d e b e n tu r e as it ware p a s s e d out o f ex isten ce. A ll that the respondent was l e f t w ith wer° his contractual righ ts to recover the d e b t undpr o r d in a r y c i v i l litig a tion . 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 right of sale, it had n* i n t e r e s t in the godown which it could pass to any b u y e r . The sale of the godown by the r e s p o n d e 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 p a s s e d to the buyer. .../2 1 21 But e v e n if the debenture Exbt. P I h ad b e e n p rop erly reg istered and was v a l i d at the time o f the sale of the godown by the respondent, it would make n 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 re s p o n d e n t, because, under the debenture the r e s p o n d e n t had n o d i r e c t power of sale. A ll th a t the debenture p r o v i d e d was f o r the appointm ent o f a r e c e i v e r in * the event of a defau lt. The . r e c e i v e r w o u l d t h e n a c t i n t h e in terests of both the len der and the b o r r o w e r . 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 lin g in C ivil A pp lication No. 18/94 rela tin g to the same subject m atter: "the defendant (present respondent) reserved itself (sic) a blank cheque, to recover its money i . e . appoint itself a prosecutor, judge, pass ju d gem en t/d ecree execute the s a me , in itia te the public auction and pocket the p r o c e e d s th ereof." In h i s subm ission, Pro f. F i m b o was a w a r ° o f this d ifficu lty. As i n d i c a t e d earlier, he c o n c e d e d t h a t no r e c e i v e r was a p p o i n t e d in terms o f the debenture, n everth eless, he u r g e d this C#urt to agree with the tria l ju d g e 's ju stifica tio n of the r e s p o n d e n t 's action , nam ely, that it was p r o p e r l y exercisirg 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 power co u ld only be d e r i v e d from the d e b e n tu re which sp elt out t h e mode o f exercisin g it namely through a receiver duly appointed. The r e s p o n d e n t had n o d i r e c t power o f sale which it purportedly exercised in this case. Ir the c i r c u m s t a n c e s , the respondent had n o i n t e r e s t ir the godown w h ich it could pass to the purchaser at a public auction. The sale was therefore null and v o i d . But a s we h a v e a lr °a d y found, the debenture had . . ./2 2 22 a lre a d y been void a t t Ke t i m e of the sale of the godowr by p u b l i c auction. We t h e r e f o r e agree with t he com plaint ir ground 3 of the memorandum o f appeal that the learned trial judge erred in l aw snd f a c t in h o ld in g that the d e b e n t u r e was v a l i d for the 1993/94 loan. It was r e n d e r e d void after forty two d a y s f o r n on -registration . We sai d, e a r l i e r that t h i s w as t h e con trollin g ground of appeal, because t h e w ay t h i s ground is resolved would effect the outcome o f the appeal. I t would affect the determ ination of the com plaint ir grourd one namely w hether the sale and transfer of th« qodown by the appellan t to the second d e f e n d a n t was l e g a l . The t r i a l judge ruled that it was r o t ir that it was t a i n t e d with fraud. But this filin g wa s b a s e d on th<= p r e m i s e that th<= d e b e n t u r e was v a l i d and su b sist!rg at the time the t wo sales by the respondert and the a ppellan t were u n d e r t a k e n and c o n c l u d e d . Sirce we h a v e found t h a t the d e b e n t u r e was a l r e a d y v o i d at the tim e *f the two s a l e s , the godown was r * t in an y way e n c u m b e r e d as the re sp o n d e n t's l o a n was u n s e c u r e d , the a p p e l l a n t was f r e e to deal w ith it in any manner i t w ished. Th^re c o u l d be no fraud in the app ellan t sellin g its unencumbered property or dep ositin g the p r o c e e d s of any su c h sale in any bank it wished, since the d eb en tu re which restricted its banking transactions to the r e s p o n d e n t w as no l o n g e r in existen ce. Hence the instances of fraud enumerated by P r o f e s s o r Fimbo against the appellan t have no r e l e v a n c e . We t h e r e f o r e say that the sale and transfer of the godown b y the app ellan t to the second d e f e r d a n t was p e r f e c t l y legal. ./2 3 23 Ou r r e s o l u t i o n of the c o m p l a i r t in ground 3 also effectively determ ines the com plaint in grouM 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 t ne goHown and pass the title to the purchaser at the public auction. The learned trial judge found t h a t he had such • i q h t a nd tid e , but we h a v e already held in the c o u r s e of d' ■t e r r r i n i n a the com plaint in ground 3 that the respondent was n o t en titled to sell t h e go'iown and had no title to pass to the purchaser. W ith these fin din gs, the c o m p la i n t s in grounds 4 and 6 au tom atically fa ll away, ground 2 was a b a n d o n e d . However, we would lik e to say in connection w ith the com plaint in. g r o u n d 6 t h a t we agree with it. The t r i a l j u ^ g e was w r o n g to grant reliefs which were not asked for in. t h e p l e a d i n g s , namely the rectifica tion of the register and the r e g i s t r a t i o n of the purchase at the public auction. B efore we e r H , we w o u l d lik e to point out that the respondent found itself in th is predicam ent largely through the ineptitude of its legal departm ent. For in stan ce, how could the respoM c r t 's legal department sit id ly by w ith o u t m onitoring the secu rity of the loan the respondent had advanced to the appellan t? The re sp o n d e n t's legal ^ a p a r t m e n t was e i t h e r n egligen t o r incom petent, for we c a n n o t see how t h e y c o u l d havs f a i l e d to ersure that the a p p ella n t com plied w ith S ection 80 of the Companies O r d in a n c e , or taken st^os them selves and registered the deben tu re as t h e y a r e empowered by S u b - s e c t i o n (1) of that section, because the respondent was surely "a person interested th erein ” . A fter such registration , the respondent could then have c o m p e l l e d the app^1l a n t to com ply w ith Section 83 o f the O rdinance that is en dorsirg the certifica te of registration on the debenture. .../2 4 24 The r e s u l t of our f i n d i n g s or grounds 1, 3 and 5 i s that th is appeal succeeds. We a l l o w the appeal and set aside t he judgem ent ar.d o r d e r of the H i gh C o u r t . The appellan t w ill have its costs of th is appeal and those in t he Court b rlow . We a l s o allow costs for two C o u n s e l as w e ll as the p rep aration of the record because if the record was d e f e c t i v e or incom plete, the rules allow ed the respondent to f i l e a supplem entary r e c o r d . The c o s t s so incurred would th e n be c o n s i d e r e d . DATED AT DAR ES SALAAM THIS 28TH DAY OF FEBRUARY, 1997 N .S. MKZAVAS JUSTICE OF APPEAL L.M. KFALILA JUSTICE OF APPEAL D .Z o LUBUVA JU STIC hi OF AF P EAL I certify that th is is a true copy o f the origin al DEPUTY REGISTRAR