[1940] EACA 43

# ORIGINAL CIVIL

## Before BARTLEY. J.

### H. J. PATEL, Plaintiff

## v.

# FULABHAI BHAILALBHAI PATEL, Defendant

# Civil Case No. 110 of 1940

Money-lending—Bond entered into by unlicensed money-lender in course of business-Variance of documents-Illegality-Money-lenders Ordinance, 1932, section 5—Indian Evidence Act, section 92.

In a suit on a bond which set out consideration for the payment of Sh. $13,439/65$ by instalments with the usual default clause and default having been made, the defendant denied liability on the ground that the transaction covered by the bond was a money-lending one and that at all material times the plaintiff was an unlicensed money-lender. The plaintiff raised a preliminary point of law that it was not open to the defendant to give evidence that the transaction was a money-lending one.

Held (16-10-40).—(1) That money-lending transactions by an unlicensed money-lender are illegal and void.

(2) That evidence was admissible to prove that the consideration recited in the bond was unlawful and the bond therefore void.

# Khanna for Plaintiff.

## Mangat for Defendant.

RULING.—This is a suit on a bond. The bond is not in the usual form but it is clear that the document is a bond. The bond recited that the obligor bound himself to pay the sum of Sh. 13,439/65 to the obligee by instalments and in default of payment of an instalment within twenty-one days of the due date the obligor bound himself to pay the sum of Sh. 13,439/65 "or the whole balance thereof or on account thereto, then remaining unpaid". In the plaint the obligee alleged non-payment of three instalments and the requisite demand for payment. In his defence obligor did not deny the execution of the bond or the non-payment of instalments. He confined himself to denying liability on the ground that the plaintiff was an unlicensed money-lender at all times material to the transaction, that the transaction covered by the bond was a money-lending one, that the plaintiff had not complied with the provisions of the Money-lenders' Ordinance either in respect of the original loans or the bond and that the claim was time barred under the provisions of the Money-lenders' Ordinance.

In a reply to the defence the obligee confined himself to denying that he ever carried on the business of a money-lender.

On the case coming for hearing the advocate for the plaintiff raised a preliminary point of law that it was not open to the defendant to give evidence that this was a money-lending transaction. The advocate for the defendant listened throughout to the arguments on this point adduced by the plaintiff's advocate and when called upon to answer this point he first took the objection that as the plaintiff in his reply to the defence had not raised this point nor had he applied to the Court to strike out the defence, the procedure adopted was not in order.

Now there was no question of the defence being taken by surprise by this preliminary point being raised as it had already been raised in an application to the Court in these proceedings on which an order was made on the 11th September. In my view the plaintiff's procedure is not inconsistent with Order 6, rule 5, the relevant portions of which only deal with issues of fact.

I would if necessary have given the plaintiff leave to amend his reply, but I do not consider this necessary. This objection is of little importance in view of the decision I have come to on the preliminary point of law.

The bond in question clearly sets out consideration. The relevant extract reads: "Whereas the obligor and Punambhai Jethabhai Patel of Nairobi aforesaid, who were formerly trading in partnership as 'The National Trading Company' at Nairobi aforesaid, are indebted to obligee, up to the date of these presents, in the sum of Shillings thirteen thousand four hundred thirty-nine and cents sixty-five (Sh. $13,439/65$ ) being the partnership debt and whereas in consideration of the obligee having agreed to release the said Punambhai Jethabhai Patel from his liability to the obligee in respect of the aforesaid debt, the obligor has agreed and/or undertaken to personally pay to the obligee the aforesaid debt in manner hereinafter appearing, as the obligor hereby acknowledges." The defendant in this case wishes to show that the debt was a money-lending transaction. I quote from Halsbury's Laws of England, 2nd Edition, Volume 3, page 104: "Nor where a particular consideration is recited can the obligor show that the consideration was in fact different, except for the purpose of showing that it was unlawful, and that the bond is therefore void".

Mr. Khanna for the obligee stressed the fact that the defendant was only seeking to give evidence that the bond had been given for unenforceable consideration. In this I think Mr. Khanna was wrong. One of the allegations which the defendant wishes to call evidence to prove is that at all material times the plaintiff was an unlicensed money-lender. If this fact were established and it were established that the bond was entered into with the plaintiff in the course of his business as a money-lender with respect to the repayment of money the bond would not merely be unenforceable, it would be illegal and void. I have come to this conclusion after a perusal of the following authorities:—In the judgment in Lodge v. National Union Investment Company (1907), 1 Ch. 306, it is stated: "At the date of the transaction I have referred to they had not registered themselves under that Act (Money Lenders Act, 1900) ..... It follows that on the authority of Victorian Daylesford Syndicate v. Dott (1905), 2 Ch. 624, and Bonnard v. Dott (1906), 1 Ch. 740, the loan transactions above referred to are void for illegality".

In Cohen v. Lester, 108 L. J. R. K. B. 277, Tucker, J. in his judgment stated: "It is to be observed that in that case (Lodge v. National Union Investment Co. supra) the transaction in question was one which was illegal, because it was expressly stated by the Money-lenders Act, 1900, S.2, that a money-lending trans-<br>action by an unregistered money-lender was illegal". The wording of section 2 of the Money-lenders Act, 1900, differs from the wording of the corresponding section of the Money-lenders Ordinance, 1932, section 5. Section 2 of the Money-lenders Act definitely prohibits an unregistered money-lender entering into contracts. I will quote the words of Buckley, J. in Victorian Daylesford Syndicate, Ltd. v. Dott (supra): "The next question is whether the Act is so expressed that the contract is prohibited so as to be rendered illegal. There is no question that a contract which is prohibited, whether expressly or by implication, by a statute is illegal and cannot be enforced. I have to see whether the contract is in this case prohibited expressly or by implication. For this purpose statutes may be grouped under two heads—those in which a penalty is imposed against doing an

act for the purpose only of the protection of the revenue, and those in which a penalty is imposed upon an act not merely for revenue purposes, but also for the. protection of the public. . . . If I assume at the conclusion that one of the objects is the protection of the public, then the act is impliedly prohibited by the statute, and is illegal. I desire to point out that the present case is one that is upon this point abundantly plain. There is no question of protection of the revenue here at all. The whole purpose is the protection of the public. The money-lender has to be registered, and has to trade in his registered name obviously and notoriously for the protection of those who deal with him".

Although section 5 of the Money-lenders Ordinance does not expressly prohibit an unlicensed money-lender from entering into a money-lending transaction it makes it an offence for him so to do, and applying the principles laid down by Buckley, J. I have no hesitation in coming to the same conclusion regarding transactions of an unlicensed money-lender in this country as he came to regarding transactions of an unregistered money-lender in England.

The law with regard to the variance of documents in this Colony is contained in sections 91 and 92 of the Indian Evidence Act. Proviso 1 to section 92 reads as follows: $-$

"Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, want or failure of consideration, or mistake in fact or law."

It is clear that facts invalidating a document can be proved. If the defendant can establish that the bond in this case is an agreement entered into by an unlicensed money-lender in the course of his business as a money-lender with respect to the repayment of money, then he would in my view prove the document to be invalid.

This case can clearly be distinguished from Kilonzo wa Kanyanya v. Odhavji Purshotam & Bros., 16 K. L. R. 44. In that case it was held that there was a definite novation. In this case the original debt is cited in the bond and the defendant alleges that this debt was incurred in an illegal transaction.

I hold that the plaintiff's contention fails.