Soni v Official Receiver, Uganda (Civil Appeal No. 7 of 1940) [1940] EACA 5 (1 January 1940)

## COURT OF APPEAL FOR EASTERN AFRICA

## Before Sir JOSEPH SHERIDAN, C. J. (Kenya), WHITLEY, C. J. (Uganda). WEBB, C. J. (Tanganyika)

## VADILAL CHHABAEHAI SONI, Appellant (Original Appellant)

v.

## THE OFFICIAL RECEIVER, UGANDA, Respondent (Original Respondent) Civil Appeal No. 7 of 1940

(Appeal from decision of H. M. High Court of Uganda)

Bankruptcy—Proof of debt founded on a demand promissory note—Appeal from rejection of proof—Onus of proof of cause justifying rejection—Right to cross-examine debtor and to give evidence.

Appellant submited a proof of debt founded on a promissory note for Sh. 5,000 made by the debtor in appellant's favour. Respondent called on appellant to inform when the sum of Sh. 5,000 was paid and to produce account books and/or documents in support. Appellant replied that his claim was founded on the note, that he kept no books as he was not a trader, that he had lent the debtor Sh. 3,000 which sum was entered in the debtor's books, that after Sh. 2,500 had been repaid him he advanced a further sum of Sh. 4,500, which sum was also entered in the debtor's books and that the note was given to cover the amount outstanding on the loans.

No credit entries appeared in the appellant's favour in the debtor's books, but though the appellant's name did not appear there were entries in the suspense account, the figures of which corresponded with those set out in appellant's affidavit. On respondent rejecting the proof on the ground that appellant had failed to produce evidence to his satisfaction in support of his application though demanded, appellant appealed to the High Court which refused to allow him to give evidence or to cross-examine the debtor and upheld the respondent's decision. Appellant appealed.

Held $(8-5-40)$ .—(1) The production of the note was prima facie evidence that it was given for value and the onus must rest on the respondent of showing such circumstances as would justify its rejection.

(2) The appellant ought to have been allowed to give evidence and to cross-examine the debtor. It was the duty of the debtor to appear so that he might be cross-examined.

Appeal allowed with costs. Case remitted to High Court for appellant to have an opportunity of cross-examining the debtors and adducing such other evidence as he may be advised.

In the High Court appeal from rejection of proof the appellant's affidavit stated as follows: $-$

"1. I am a creditor of the above-named bankrupts and on the 7th day of September, 1939, lodged with the Official Receiver the trustee of the property of the said bankrupts a proof of debt for a sum of Sh. 5,000 against their estate in respect of their indebtedness to me at the date of the Receiving Order herein. A copy of the said proof of debt is attached hereto and marked 'A'.

2. The said proof was in respect of moneys advanced by me to them.

3. By notice in writing dated the 29th day of February, 1940, the said trustee rejected the said proof in full on the ground that I had failed to produce evidence to his satisfaction in support of my claim. A copy of the said notice is attached hereto and marked 'B'.

4. I was informed by Pranshanker Shamji Joshi, one of the debtors, on or about 20th March, 1939, that debtors required a temporary loan of Sh. 3,000 for business purposes. I advanced this sum in cash to debtors. Sh. 2,500 of this loan was repaid to me at various times between about the 20th March, 1939, and the 7th April, 1939.

5. I took no receipt or acknowledgment in writing from debtors for the said sum of Sh. 3,000 nor did I give receipts for sums repaid to me.

6. On or about 7th April, 1939, the debtors informed me that they desired to meet certain liabilities in their business and required a further loan of Sh. 4,500. I advanced the said sum of Sh. 4,500 in cash. On this occasion as debtors had not repaid a sum of Sh. 500 of the previous loan I asked for and received a promissory note for Sh. 5,000 by way of acknowledgment of the debt and payable on demand.

7. The promissory note aforesaid was exhibited by me to the trustee with the proof of debt and a copy thereof is attached here and marked 'C'.

8. Prior to the Receiving Order I had requested payment of the amount of the said promissory note but debtors informed me that they were unable to meet it at the time but would do so later on.

9. I set out the facts above-mentioned in paragraphs 4, 5 and 6 in a $\frac{1}{2}$ letter written on my behalf by my advocate on 16th February, 1940, a copy of which is attached hereto and marked 'D'. I further stated therein that entries were made in the debtors' books relating to these transactions as I verily believe they were. No denial of the latter statement has been received from the said trustee who is in possession of the books of account of the debtors.

10. I respectfully submit that this appeal should be allowed and that the trustee should be ordered to admit my said proof in full."

Respondent filed a memorandum of disallowance which was as follows: —

"1. Regarding paragraph 1 of the affidavit of Vadilal Chhababhai Soni it is admitted that a proof of debt was filed by him for Sh. 5,000, and that the claim was rejected by my notice dated the 29th February, 1940. The said proof of debt and a copy of notice of rejection are attached hereto.

2. The debtor's books of account do not disclose any credit entry in favour of this claimant on or about 20th March, 1939, or any payments to him between the 20th March, 1939, and the 7th April, 1939, as stated in paragraph 4 of the affidavit. A sum of Sh. 3,000 is credited to 'Shah' (i.e. Suspense) Account on the 28th March, 1939, as 'Cash brought on loan'. This entry does not disclose from whom it was brought. Payments were made from this 'Shah' account between the dates 20th March, 1939, and 7th April, 1939, of Sh. 500 on 23rd March, 1939, by cheque drawn in favour of cash, of Sh. 2,500 on 3rd April, 1939, by cash and of Sh. 500 on 6th April, 1939, by cheque also in favour of cash.

3. A sum of Sh. 4,500 appears as credited to 'Shah' account on the 8th April, 1939, as 'brought loan' and an entry dated 13th June, 1939, transferring a sum of Sh. 5,000 from the 'Shah' account to the credit of 'Vadilal C. Soni' account was made when the account books were being written up in my office after the Receiving Order. With the exception of this transfer entry there is no indication whatsoever in the account books showing that the loans credited and debited to 'Shah account' were obtained from this claimant, and as there are many items credited and debited to 'Shah account' it is difficult and almost impossible to identify from whom they were received or to whom they were paid.

4. The promissory note referred to in paragraph 6 of the affidavit is dated the 8th April, 1939, an attachment for a debt of about Sh. 20,000 was levied against the debtor firm about the middle of June, 1939, and the bankruptcy proceedings commenced about the end of June, 1939. The debtor Pranshanker Shamji Joshi has also admitted that this claimant, Mr. Vadilal Chhabhabhai Soni, is his friend. Taking all these facts into consideration, the claimant was called upon to furnish satisfactory evidence in support of his claim and the claim was rejected on account of his failure to do so.

5. The Official Receiver has no knowledge of any demand having been made before as stated in paragraph 8 of the affidavit or of any evidence in that respect and submits that it is mentioned for the first time in the present affidavit.

6. It is therefore submitted that the appeal be dismissed with costs."

The appeal was disallowed and the appellant appealed to this Court.

Wilkinson for the Appellant.

Parekhji for the Respondent.

WHITLEY, C. J.—A receiving order was made against the debtors on the 14th July, 1939. The appellant on the 7th September, 1939, lodged with the Official Receiver proof of debt for Sh. 5,000 founded on a demand promissory note, dated the 8th April, 1939. The Official Receiver rejected this proof on the ground that the appellant had failed to produce satisfactory evidence in support of his claim. The appellant appealed to the High Court and his appeal was dismissed. From that decision he has appealed to us.

The Official Receiver filed a memorandum of disallowance which undoubtedly discloses suspicious circumstances. In the view which I take of the case I do not think it necessary to set them out in detail. It will suffice to state that one reason was the absence of any credit entries in favour of the appellant in the debtors' books.

Before the learned Judge who heard the appeal Mr. Wilkinson applied for leave to cross-examine the debtors in order that the absence of such entries might be explained. I should add that, although the appellant's name does not appear, there are entries in the Suspense account, the figures of which correspond with those set out in the appellant's affidavit and it has to be borne in mind that the production of the note is *prima facie* evidence that it was given for value (Jones v. Gordon, L. R. 2 A. C. 616) and the onus must be on the Official Receiver to show such suspicious circumstances as will justify rejection.

It would appear possible that the learned Judge did not properly apprehend the nature of Mr. Wilkinson's application. In his notes there appears a reference to the case of In re Bottomley, Hansell, Vol. 1, p. 75, followed by a note that the Deputy Official Receiver objected that the appellant had no right to call evidence in the High Court and cited In re Van Laun, 1907, 1 K. B. 155 and 1907, 2 K. B. 23.

In his judgment the Judge rules that the appellant could not be permitted to give, on appeal in that Court, information by evidence which he had refused to produce before the Official Receiver when properly called upon to do so.

He would thus seem to have been under the impression that the appellant wished to call fresh evidence which he had all along had available and could have produced before the Official Receiver.

It is, however, in my opinion clear from the reference to the Bottomley case that Mr. Wilkinson's recollection is correct for the only passage in that case which has the least bearing upon the present case is the observation of Horridge J. that statements of a debtor in his public examination could not be used against a third party, but that the debtor could of course be cross examined.

The facts in *In re Van Laun* are clearly distinguishable from those in the case before us. There the creditor whose proof was rejected refused to give the Official Receiver details of amounts and dates which he admittedly had available. Here the appellant has all along maintained that he has no books or documents in his possession referring to his claim.

In effect the appellant's attitude seems to be this, "You, the Official Receiver, consider that the entries in the debtor's books which, I say, support my claim, are suspicious and accordingly you reject my proof. I demand the opportunity of showing that your suspicions are ill-founded by the only methods available to me, namely by cross-examining the debtors on their books. I am also prepared to submit myself to cross examination."

I regard the attitude as reasonable and I think the appellant had the rightto cross-examine. It was further the duty of the debtors to be present and submit themselves to cross examination. (In re Fitzgerald ex parte Hobbs (1916) H. B. R. 157).

I would allow the appeal with costs and order that the case be sent back to the High Court for the appellant to have an opportunity of cross examining the debtors and adducing such other evidence as he may be advised and that the costs of the appeal to the High Court abide the result of the re-hearing.

SIR JOSEPH SHERIDAN, C. J.—I have had the advantage of reading the judgment of my brother Whitley with which I agree.

WEBB, $C. J.-I$ agree.