CALICO TEXTILE INDUSTRIES LTD AND ANOTHER v TANZANIA DEVELOPMENT FINANCE CO. LTD 1996 TLR 257 (CA)

 

CALICO TEXTILE INDUSTRIES LTD AND ANOTHER v TANZANIA DEVELOPMENT FINANCE CO. LTD 1996 TLR 257 (CA)

Court Court of Appeal of Tanzania - Dar es Salaam

Judge Kisanga JJA, Ramadhani JJA and Mfalila JJA

G

CIVIL APPEAL NO 25 OF 1993 H

26 October, 1995

(Appeal from the Ruling of the High Court of Tanzania,

Dar es Salaam, Kyando J.)

Flynote

Debtor and Creditor - Loan agreement - Debenture to secure such loan - Rectification

sought of I amount repayable stated thereon -

1996 TLR p258

When such rectification competent - Section 85 of the Companies Ordinance, Cap

212. A

Law of Limitations - Fraudulent misrepresentation - Effect on limitation of

proceedings - Section 26(a) of the Law of Limitation Act.

-Headnote

On 11 September 1992, the High Court (per Kyando, J) ordered the rectification of B

certain official forms held by the Appellant's, in which forms a loan amount secured

by a debenture was stipulated variously as being US$ 904,000 or Shs. 16,626,500/= or

both. The trial Court found that the clear intention of the parties at all material times

was that the amount expressed in dollars had been advanced and that accordingly the

amount C repayable, as evidenced by the amount secured by the debenture (as well

as the relevent official forms), should reflect the amount in dollars only without

reference to the Tanzanian shilling equivalent. The Court ordered rectification

accordingly.

The First Appellant is the debtor under the loan and debenture, the Second Appellant

is D the Registrar of Companies (holder of the official forms) and the Respondent is

the creditor in terms of the loan and debenture.

The Appellants appeal against the order of rectification, submitting that the trial

Judge erred in law for various reasons in holding that Respondent's application was

competent.

Held: E

(i) Since the loan had not been repaid in the full amount expressed in

dollars, it could not be said that the debt had already been discharged and thus an

application for rectification could be brought.

(ii) The trial Judge was correct in finding that the actual terms of the loan

should be established with reference to the document creating the charge, being the

debenture, in casu. F

(iii) The trial Judge correctly found, further, that the Second Appellant's

certificate of discharge of the debt was invalid and fell to be set aside, since such

discharge was based on the repaid amount expressed in shillings, and not in dollars.

(iv) The First Appellant's misstatement in its memorandum to the Second

Appellant G to the effect that the debt had been discharged, was a false declaration

on its part and amounted to fraudulent conduct.

(v) The period of limitation for the bringing of legal proceedings in the

Law of Limitation Act does not begin to run until the victim of fraud has discovered

the fraud.

(vi) The application was brought timeously before the trial court since it

was H brought within 60 days of the discovery of the First Appellant's fraudulent

misrepresentation to the Second Appellant.

(vii) The appeal is dismissed with costs.

Case Information

Ordered accordingly.

Cases referred to: I

1. In re Mechanisations (Eaglescliffe) Ltd [1964] 3 All ER 840

1996 TLR p259

KISANGA JA

A 2. Lolkilite Ole Ndinoni v Netwala Ole Nebele [1952] 19 EACA 1

3. Nothman v London Borough of Barnet [1978] 1 All ER 1243 (CA)

4. Osman v The United India Fire and General Insurance Company Ltd

[1968] EA 102

Ismail, for the First Appellant. B

Salula, Senior State Attorney, for the Second Appellant.

Kameja, for the Respondent.

[zJDz]Judgment

Kisanga JA:

This appeal arises from the decision of the High Court (Kyando J) allowing an

application C for the rectification of errors under s 85 of the Companies Ordinance

Cap 212.

Briefly the background to the case was as follows: In April 1979 the first appellant,

Calico Textile Industries Ltd (hereinafter referred to simply as Calico Textile) and

Tanzania Development Finance Company Ltd (hereinafter referred to by its acronym

TDFCL) D entered into a loan agreement whereby Calico Textile was to receive

from TDFCL a loan of US $904,000 (or the equivalent thereof in other convertible

currencies) by way of a foreign currency loan. In point of fact TDFCL was acting

essentially as a conduit in an E arrangement whereby it was allowed to borrow from

the World Bank for re-lending to feasible projects in Tanzania, and the Tanzanian

Government guaranteed repayment by TDFCL to the World Bank. Calico Textile

having obtained the said loan, issued a single debenture to TDFCL as security for the

principal sum of US $904,000 with interest F thereon. All the moneys, including the

principal and interest as secured under the debenture, were repayable in Tanzanian

shillings converted to the currency of the loan at the rate of exchange ruling on the

date of repayment.

Calico Textile received full payment of the loan as agreed and it started repayment in

accordance with the terms of the agreement. Meantime the debenture was, in G

compliance with statutory requirement, filed with the second respondent, the

Registrar of Companies (hereinafter referred to as the Registrar) for registration as a

charge. On its cover page the debenture was shown to be a security `for US $904,000

(or the H equivalent thereto in other convertible currencies) being approximately

Shs 16,626,500/=', but in its body it was shown to be a security for a foreign currency

loan only; there was no reference to the Tanzania shillings. Also filed with the

Registrar in compliance with statutory requirement, was form No 9, being particulars

of the said I debenture, and showing that the amount secured was `US $904,000

being approximately Shs 16,626,500/='.

1996 TLR p260

KISANGA JA

Acting on the information filed the Registrar issued form C2, the certificate of

registration A of the charge showing that the debenture secured in favour of TDFCL

was Shs 16,626,500/= only; no reference was made to foreign currency. As mentioned

earlier, Calico Textile had started repaying the foreign currency loan on the terms as

agreed, B and it continued to do so for some time. The case for TDFCL is that before

that loan was fully repaid, Calico Textile on 7 May 1992 filed with the Registrar Form

No 10 wherein it declared that the charge as registered, being a debenture to secure

Shs 16,626,500/= only in favour of TDFCL, had been satisfied to the extent of Shs C

17,418,438.35/=. Acting on that information the Registrar on the same day issued a

certificate to the effect that the debenture was discharged. TDFCL claims that from

that time to the time of bringing this action Calico Textile no longer repaid or

serviced the foreign currency loan.

The case for TDFCL was that Calico Textile was aware of the misstatement on the D

cover page of the debenture, in the particulars on Form No 9 and in the Registrar's

certificate of registration Form C2 that the debenture was for Shs 16,626,500/= or

approximately that amount while, to its knowledge, the true position was that the

debenture was a security for US $904,000 or the equivalent thereof in other

convertible E currencies as was expressly stated in the loan agreement and in the

body of the debenture. Again Calico Textile knew that it had not fully repaid the

foreign currency loan. Thus TDFCL contends that with the knowledge of such

misstatement of the particulars of the loan and of the non-payment of part of the

foreign currency loan, the declaration by F Calico Textile to the Registrar that the

charge had been satisfied was obviously false, and that the Registrar's purported

certificate of discharge based, as it was, on such false declaration was necessarily void.

In its prayer, therefore, TDFCL asked for an order for the rectification of the

misstatement of the particulars on Form No 9 and on the G certificate of registration

of Form C2 by deleting therefrom all reference to Shs 16,626,500/= so as to reflect the

amount secured by the debenture as being US $904,000 only. As intimated before, the

learned Trial Judge granted the application and made orders in the following terms:

H

`I grant the application as prayed, with costs to the applicant. The second

respondent is hereby ordered to, within fourteen (14) days from the date of the

delivery of this ruling, rectify forms No 9 and C2 (plus his register of charges) to show

that the amount secured by the Debenture discussed in this I case is US $904,000 (or

its equivalent in

1996 TLR p261

KISANGA JA

other convertible currency) by way of a foreign loan, or, simply US $904,000

without any reference to A Shs 16,626,500/=. The first respondent is ordered also to

rectify his register of charges in relation to this loan so that it is shown therein that

the Debenture is security for US $904,000 only, as the Debenture itself states.' B

It is from that decision that this appeal is preferred.

In this appeal the first appellant, Calico Textile, is represented by Mr M A Ismail,

learned advocate, the second appellant, the Registrar, is represented by Mr S B Salula,

learned Senior State Attorney while the respondent, TDFCL is represented by Captain

A K C Kameja, learned advocate. Mr Ismail had filed five grounds of appeal but at

the hearing he abandoned grounds 1 and 5 and argued the remaining three. Mr Salula

filed four grounds but argued only the fourth ground because he abandoned ground 3

while grounds 1 and 2 were covered by Mr Ismail in the course of his submissions.

Therefore D altogether Mr Ismail and Mr Salula argued a total of four grounds

which, for convenience are set out and renumbered as follows --

1. The learned judge grossly erred in law in not holding that there could

be no E rectification of the debenture/charge as the latter was already

satisfied/discharged.

2. The learned judge erred in law in not holding that the application of

the respondent was legally incompetent.

3. The learned judge erred in law in not holding that the application was

time barred. F

4. The learned judge erred in law in issuing decrees which are not

enforceable in law.

The thrust of Mr Ismail's submission on the first ground is that once the charge was

G certified by the Registrar on 7 May 1992 to have been discharged, then this

application which was filed only subsequently on 29 May 1992 was misconceived.

For, as at the date of filing that application the charge no longer existed, and therefore

no application for rectification could properly be made in respect of a non-existent

charge. Learned H counsel took the view that in the circumstances what TDFCL

should have done was to apply to Court to have the charge restored in the first

instance after which it was then open to it to apply for the desired rectification of

errors in respect of the restored charge.

Mr Ismail who had also represented Calico Textile at the trial had raised this point

there I but the Trial Judge rejected it saying in effect

1996 TLR p262

KISANGA JA

that the purported discharge was invalid in as much as the foreign currency loan had

not A been fully repaid. We are in complete agreement with the learned judge on

this. There was ample evidence that Calico Textile has not repaid fully the foreign

currency loan, and Calico Textile can have been under no misapprehension

whatsoever about it. For instance, in para 18 of the applicant's affidavit it was stated

that as at the date Calico B Textile made the declaration to the Registrar that the

charge had been satisfied, there still remained US $534,736 unpaid by Calico Textile

to TDFCL. That averment was not controverted. Indeed both at the trial and during

this appeal it was not seriously C contended on behalf of Calico Textile that the

foreign currency loan has been fully repaid. Even the grounds of appeal filed in this

court do not put forward any such suggestion. Once it was rightly found that the

foreign currency loan was not fully repaid, then the High Court judge was entitled to

hold, as he did, that the Registrar's certificate of D discharge was invalid as it was

based on Calico Textile's false declaration that the charge securing that loan was

satisfied, meaning that the loan itself was fully repaid.

There was the related question as to the amount of money secured by the debenture.

That question arose because the Registrar's certificate of registration shows that the E

debenture was a security for Shs 16,626,500/= only while TDFCL contended that it

was for US $904,000 (or the equivalent thereof in other convertible currencies). Mr

Ismail appeared to take the view that the Registrar's certificate was conclusive

evidence of the amount secured. The learned Trial Judge resolved that question by

holding that the F debenture was a security for US $904,000 (or the equivalent

thereof in other convertible currencies). In doing so he cited with approval the

decision in the English case of In re Mechanisations (Eaglescliffe) Ltd (1) which said

in effect that in order to ascertain the terms and effect of the charge one has to look at

the document creating the charge and G not at the register.

Like the Trial Judge we are satisfied that that view correctly represents the law of this

country on that point. Applying that principle to the facts of the present case then, it

is common ground that both in the loan agreement and in the body of the debenture

the H amount of money stated is US $904,000 (or the equivalent thereof in other

convertible currencies). The only variation of this appears on the cover page of the

debenture wherein it is stated thus: I

`Single Debenture for US $904,000 (or the equivalent thereof in other

convertible currencies) being approximately Shs 16,626,500/=.'

1996 TLR p263

KISANGA JA

It cannot seriously be maintained that the debenture was created as a security for Shs

A 16,626,500/= when there was no reference to that sum, or to that currency for that

matter, either in the loan agreement or in the body of the debenture itself. Had the

parties contemplated Tanzania Shillings as the currency of the loan, they would

certainly have B shown this in the loan agreement or in the body of the debenture.

It was submitted on behalf of TDFCL that Shs 16,626,500/= was inserted on the cover

page of the debenture only for the purposes of determining the stamp duty which was

payable in Tanzanian money upon registration of the debenture. That submission was

C not refuted and to our minds it sounds plausible. In any case we are firstly of the

view that in ascertaining the terms and effect of the debenture one should not merely

look at the title page of the debenture and ignore what is stated in the body of the

debenture D itself; rather one should look at the document as a whole which is

exactly what the Trial Judge did. In addition the learned judge found that the loan

agreement made no reference to Tanzania Shillings. Consequently he came to the

conclusion that the debenture was a security for US $904,000 (or the equivalent

thereof in other convertible currencies). We are unable to say that he erred. E

In our view, therefore, the Trial Judge rightly found that the Registrar's certificate of

discharge of the debenture was invalid in as much as it was based on Calico Textile's

false declaration that the debenture was satisfied when it was not. Consequently it

was F open to the learned judge to set aside, as he did, the purported discharge

certified by the Registrar because it was in fact no discharge at all; it was simply void.

We reject Mr Ismail's contention that the proper thing for TDFCL to have done was

to apply to Court to have the charge restored in the first instance. For, as we have

amply demonstrated, the G charge had not in fact been discharged; and as will be

shown later, it was not necessary to bring separate actions, first for setting aside the

purported discharge of the debenture and then for rectification of the misstatement.

That disposes of the first ground of appeal. The second ground appears to be a H

necessary corollary of the first ground. It alleges that the application by TDFCL was

legally incompetent because, as we understand it, the applicant was seeking for

rectification of errors in respect of a debenture which no longer existed as it had

already been discharged. We have already held that the debenture in question has not

been I discharged and that it is still subsisting. The application was, therefore, legally

competent, and this ground of appeal equally fails.

1996 TLR p264

KISANGA JA

On the third ground alleging that the application was time barred, there was evidence

A that the debenture was registered in 1985 while this application was brought in

1992, that is, over six years later. Mr Ismail rightly pointed out that under the

Companies Ordinance (Cap 212) no time limit is provided for within which such

application should B be brought. However, counsel for both sides rightly took the

view that in those circumstances para 21 of Part III of the First Schedule to the Law of

Limitation Act applied, in which case the application should have been brought

within 60 days of the registration of the debenture. Mr Ismail charged that the

application was not brought C within that time limit, nor was there an application to

the Court for the extension of that period. Learned counsel, therefore, contended that

the application was wrongly entertained and it ought to have been thrown on a

preliminary objection.

In response to that submission Captain Kameja contended that the application was

not D time barred. In his view the period of limitation did not begin to run against

TDFCL, his client, until on 16 April 1992 when the Registrar wrote to TDFCL

following its appointment of a receiver in respect of Calico Textile concerning the

debenture in question. That, according to Captain Kameja,was the time when TDFCL

learnt for the E first time of the misstatement of the registered particulars of the

debenture and that that was when time started to run. However, counsel went on, as

soon as it was practicable thereafter, ie on 2 June 1992, TDFCL filed this application.

All this was duly supported by the affidavit sworn on behalf of TDFCL by its then

company secretary, Mr R C J Pesha, F and no counter affidavit or affidavit in reply

was filed in response thereto. Then, relying on the provisions of s 26(c) of the Law of

Limitation Act, Captain Kameja submitted that the application was brought within 60

days of his client's becoming aware of the misstatement and, therefore, the

application was timeous. G

Section 26 says that:

`26. Where in the case of any proceeding for which a period of limitation is

prescribed--

H (a) the proceeding is based on the fraud of the party against whom the

proceeding is prosecuted or of his agent, or of any person through whom such party

or agent claims; or

(b) the right of action is concealed by the fraud of any such person as

aforesaid; or

I (c) the proceeding is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has

1996 TLR p265

KISANGA JA

A discovered the fraud or the mistake, or could, with reasonable diligence, have

discovered it:'

There follows a proviso which, however, is not relevant to the facts of the present

case.

We think that Captain Kameja relied on the wrong paragraph of s 26. In our view the

B relevant provision here was para (a). First of all it is to be noted that the matter

involving this case started off as an innocent misstatement, but at a later stage it

assumed the character of fraud. It began when the Registrar registered the particulars

of the debenture as being a security for Shs 16,626,500/= only. This information

appeared for C the first time on the cover page of the debenture which, as already

noted, stated that the debenture was for US $904,000 (or the equivalent thereof in

other convertible currencies) being approximately Shs 16,626,500/=. It again appeared

on Form No 9, being the particulars of the charge sent to the Registrar for

registration, and showing that D the debenture was for US $904,000 being

approximately Shs 16,626,500/=. In registering the debenture, the Registrar obviously

misstated the particulars thereof as being security for Shs 16,626,500/= only when in

the loan agreement and in the body of E the debenture itself there was no reference

whatsoever to Tanzania Shillings, and indeed it was made clear therein that the loan

was a foreign currency loan and the debenture was the security for such loan.

However, the misstatement by the Registrar was innocent because the Registrar is not

shown to be a party who stood to gain from F such misstatement or who assisted

another party to gain from such misstatement. So that if the story had ended there

then in our view, Captain Kameja for TDFCL could properly have invoked s 26(c)

above quoted to say that this was a proceeding for relief from the consequences of a

mistake or misstatement. G

The situation, however, changed when Calico Textile, acting on that innocent

misstatement, declared in its memorandum to the Registrar that the debenture had

been satisfied when, as shown already, it knew fully well that it had not. Such false H

declaration was not an innocent misstatement or mistake on the part of Calico

Textile. It was a deliberate act whereby Calico Textile took advantage of the

Registrar's innocent misstatement of the terms and effect of the debenture and sought

to extinguish its liability under the debenture to the detriment of TDFCL. Such

conduct was fraudulent. It I could not possibly be said to amount to an innocent

misstatement or mistake in the light of the full knowledge by Calico

1996 TLR p266

KISANGA JA

Textile that the foreign currency loan, for which the debenture in question was a

security, A had not been fully repaid.

Thus in terms of s 26(a) above quoted the proceeding involves or is based on the

fraudulent conduct of Calico Textile. In other words this proceeding necessarily arose

out of Calico Textile's fraudulent misrepresentation to the Registrar that the

debenture B had been satisfied. Therefore the issue of limitation in bringing such

proceeding must be considered in the light of such fraudulent conduct of Calico

Textile. Incidentally it is appropriate to point out here that it would be unnecessary to

bring two separate actions, C as canvassed by Mr Ismail, first to set aside the

Registrar's purported certificate of discharge which was based on the fraudulent

misrepresentation of Calico Textile, and then another one for the rectification of the

misstatements or errors. That would amount to a multiplicity of actions involving

unnecessary expense in terms of time and money while the end result would be

exactly the same. Not only that. Calico Textile's fraudulent D misrepresentation to

the Registrar and the misstatement in the particulars of the charge (Form No 9), and

in the Registrar's certificates of registration (Form C2) and of discharge are so closely

connected that one could not meaningfully talk about them separately. We are

increasingly of the view that it was open to the learned High Court E judge to

entertain the application for the rectification of errors and, in the process, to consider

the validity or otherwise of the Registrar's certificate of discharge and make the

appropriate order.

The question now falling for consideration is, when did the period of limitation begin

to F run in this case? The relevant part of s 26 cited above says that:

`the period of limitation shall not begin to run until the plaintiff has

discovered the fraud or the mistake, or could, with reasonable diligence, have

discovered it' (The emphasis is supplied.) G

The view was taken that the period of limitation began to run on 6 May 1986 when

Mr Pesha on behalf of TDFCL received the Registrar's certificate of registration

containing the misstatement, because at that point Mr Pesha could, with reasonable

diligence, have H discovered the misstatement and hence the fraud underlying the

said certificate. We think, however, that that view is untenable. In our view the

expression `.. could, with reasonable diligence, have discovered it' refers to mistake

only; it does not refer to fraud. I We say so because in our opinion s 26 above

quoted, and indeed the law in general, seek to protect victims of fraud, not the

1996 TLR p267

KISANGA JA

perpetrators of fraud. Now if the above quoted expression is to be given literal A

interpretation, it would mean that the period of limitation begins to run when the

victim of fraud could, with reasonable diligence, have discovered the fraud. So that a

perpetrator of fraud could then set up a defence saying: `Yes, I committed the fraud,

but I am not B liable because the victim thereof did not discover the fraud within

the limitation period even though he (the victim) could, with reasonable diligence,

have done so.' That, in our view, would be totally unacceptable. It is contrary to all

principle and good conscience to allow the perpetrator of fraud to enjoy the fruits of

his own vice. C

Such interpretation runs counter to the long established principle laid down, inter

alia, by the Court of Appeal for Eastern Africa in the case of Lolkilite Ole Ndinoni v

Netwala Ole Nebele (2) wherein it was stated: `A cardinal rule of interpretation is

that one must, whenever one can, place such interpretation on a statute as will not

lead to an absurdity.' D More recently in the English case of Nothman v London

Borough of Barnet (3) the Court of Appeal said in effect that the literal rule of

statutory construction has been replaced by the purposive approach. That the Courts

should adopt such a construction E as will promote the general legislative purpose

underlying the statute. And that whenever the strict interpretation of a statute gives

rise to an absurd and unjust situation, the judges can and should use their good sense

to remedy it, by reading words in, if necessary, so as to do what parliament would

have done had they had the situation in mind. F

We are of the settled view that the expression under review in this case is one where

literal interpretation of it would lead to absurdity by enabling a perpetrator of fraud

to benefit from his own vice, and to cause gross injustice to the victim of the fraud. It

G cannot have been in the contemplation of the Legislature to enact such a provision.

Consistent with the approach in Nothman's case above cited, therefore, we consider it

necessary to read words into the provision to mean that the period of limitation does

not begin to run until the victim of fraud has discovered the fraud. The words `...

could, with H reasonable diligence, have discovered it' in that provision are to be

limited to mistake. We think this is what Parliament would have done had they had

the situation in mind.

We now apply this interpretation to the facts of the present case. As stated before,

this was a matter which started off as an innocent misstatement but later developed

into a I fraud which eventually sparked off this litigation. In our view the limitation

period started

1996 TLR p268

KISANGA JA

to run after the discovery of the fraud which sparked off the litigation. A

Mr Pesha discovered the fraud through the Registrar's letter dated 16 April 1992.

According to that letter Calico Textile had misrepresented to the Registrar that it had

B discharged its obligation under the debenture. It is that discovery which led to the

institution of this proceeding by TDFCL's application dated 2 June 1992. We therefore

uphold Captain Kameja's submission that the application was timeous because it was

brought within 60 days of the discovery of Calico Textile's fraudulent

misrepresentation C to the Registrar that it had discharged the debenture, knowing

fully well that it had not.

Mr Ismail referred us to s 3 of the Law of Limitation Act and strenuously contended

that once the application was found to be time barred, the Trial Judge had no power

to D extend the time on his own and proceed to hear it on the merit as he did. In

support of such submission learned counsel referred us to the decision of the Court of

Appeal for Eastern Africa in the case of Osman v The United India Fire and General

Insurance Company Ltd (4). With due respect to the learned counsel, however, the

provisions of E the law he has cited and his submissions on the point are all

irrelevant because, as we have endeavoured to show, the application here was

timeous and, therefore, the question of the Trial Judge extending the time did not

arise. The third ground of appeal, therefore, also fails. F

Ground 4 criticises the Trial Judge for issuing decrees which are not enforceable in

law. There is some merit in this ground. The learned judge granted the application as

prayed, meaning that (a) Form No 9 being the particulars of the charge delivered by

Calico G Textile to the Registrar for registration be rectified, and (b) Form C2 being

the certificate of registration of the charge issued by the Registrar also be rectified. It

is clear that Form No 9 is to be rectified by its author, Calico Textile while Form C2 is

also to be rectified by its author, the Registrar. The learned judge, therefore, erred

when he went on to order H the Registrar to rectify Form No 9; that form is to be

rectified by Calico Textile. However, the error was not fatal because no one was

prejudiced thereby. The error is accordingly corrected as indicated above while the

rest of the award is affirmed.

In the final analysis, and for the reasons set out herein before, the appeal fails and it is

I dismissed with costs.

1996 TLR p269

A