025-SLLR-SLLR-2003-V-3-DEVELOPMENT-FINANCE-CORPORATION-D.-F.-C.-C.-BANK-LTD-v.-SOMAWEERA.pdf
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DEVELOPMENT FINANCE CORPORATION(D.F.C.C. BANK LTD)v
SOMAWEERACOURT OF APPEALAMARATUNGA, J.
BALAPATABENDI, J.
A.L.A 251/99 (LG)
C.MT. LAVINIA 382/99 SPLDECEMBER 3, 2002
JULY 14, 2002
Development Finance Corporation (DFCC) Act, No. 35 of 1955 amended by 25of 1993 – S4, 5 and 18, Power to grant loans – Conducive to economicDevelopment of the country – Meaning – What is a commercial enterprise -Recovery of loans by Banks (Spl. Provi) Act, No. 4 of 1990 -S. 4 and 22 – CanDFCC resort to Parate Execution under Act, No. 4 of 1998 -“ includes" asopposed to “Means”- Preamble -Aid to Construction – Who is a person?
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Development Finance Corporation (D.F.C.C. Bank Ltd.) v
Somaweera (Gamini Amaratunga, J.)
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The petitioner obtained a loan for his business of selling fast foods and oper-ating a restaurant. Security offered was land, and as the loan was not repaid,• the Bank sought to parate execute the property.
The petitioner sought and obtained an injunction preventing the Bank from“Parate Executing” the property, on the ground that the D.F.C.C. is not entitledto resort to section 4 of Act No. 4 of 1990 as the Act is confined to recovery ofloans given for economic development, and the business of selling fast foodsand running a restaurant is not an enterprise which is conducive to economicdevelopment of Sri Lanka. The Court also took the view that the D.F.C.C. hadno power to grant the loan- as the plaintiff’s business did not fall within the pur-poses of the D.F.C.C.
Held :
The phrase “Commercial Enterprise” has to be interpreted in its ordi-nary natural sense. Section 18, states that, commercial enterprise
includes an enterprisewhich shall be conducive to the economic
development of Sri Lanka. Word “include" is used as a word of enlarge-ment and ordinarily applies that something else has been given beyondthe general language, which precedes it, word “means” is used wherethe legislature wants to exhaust the significance of the term defined,the word “includes” is used in order to enlarge the meaning.
Creation of employment opportunities is an aspect of economic devel-opment.
Preamble of an act cannot be utilised to cut down or restrict a clear pro-vision in the Act.
In the Act No. 4 of 1990, there is no requirement in the definition of“loan” that – it shall have been granted for economic development.
One resolution can be adopted for the same property mortgaged underthree separate Bonds – there need not be three Resolutions.
It is provided that, the Bank could authorise any person to auction theproperty, the appointment of S and S is valid, as the interpretationOrdinance defines a person to include anybody of persons corporateor incorporate.
APPLICATION for Leave to Appeal with leave being granted.
Cases referred to:
Attorney-General v H.R.H. Prince Earnest of Hanover (1957) AC 436.
Yashoda Holdings v People's Bank – 1998 3 Sri LR 382, at 386,387
S.A. Parathalingam, PC. with Nihal Fernando for defendant-appellant.
Harsha Soza for plaintiff-respondent.
Cur adv vult.
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GAMINI AMARATUNGA, J.This is an application for leave to appeal against the order of 01the learned District Judge of Mount Lavinia issuing an interiminjunction preventing the appellant Bank (hereinafter referred to asthe Bank) from selling by auction the property mortgaged to theBank by the plaintiff-respondent (hereinafter referred to as theplaintiff).
The facts relevant to this application are as follows. The plain-tiff who carried on the business of selling fast food and operatinga restaurant under the name of “Big Apple” obtained three loansfrom the Bank for the said business. The first loan was a sum of Rs. 1010 million to be settled in 72 installments after a grace period of 24months. The second loan was a sum of Rs. 3 million to be settledin 72 monthly installments after a grace period of 15 months. Thethird loan was a sum of Rs. 550,000/- repayable in 36 equal install-ments. after a grace period of six months.
As security for the repayment of the said loans the plaintiff hasexecuted mortgage bonds No. 63 of 15/9/94, No. 138 of 24/5/1995and No. 327 of 19/7/1996 mortgaging the land and premises at No.
21, Hill Street, Dehiwala to the Bank. The fact that the said loanswere not fully settled and that the plaintiff is in default is evident 20from the averments in the plaint itself and the learned District Judgein his order dated 20/10/1999 has stated that prima facie it appearsthat the plaintiff is in default.
The Board of Directors of the Bank acting under section 4 ofthe Recovery of Loans by Banks (Special Provisions) Act, No. 4 of1990 has passed a resolution to sell by public auction the propertymortgaged to it by the aforesaid mortgage bonds. According to theresolution, a copy of which has been marked and produced as P10by the plaintiff, the total amount of the outstanding debt owed by theplaintiff to the Bank as at 1st July 1998 was Rs. twenty million six 30hundred and eight thousand and seventy six and twenty two cents(Rs 20,608,076.22). In terms of this Resolution; the auctioneerauthorized by the Bank published notice in the newspapers
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Development Finance Corporation (D.F.C.C. Bank Ltd.) v
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advertising the auction sale of the mortgaged property on24.2.1999.
The plaintiff by his plaint dated 19.2.99 sought an enjoiningorder, an interim injunction, a permanent injunction preventing theBank from selling the mortgaged property and a declaration that thesaid Resolution of the Bank is null and void and that the Bank is notentitled to sell the property on the said resolution. On the same daythe District Court has issued an enjoining order as prayed for andnotice of interim injunction. After the Bank appeared and filedobjections to the granting of an interim injunction, the learnedJudge has made order dated 20/10/1999 issuing an interim injunc-tion.
The basis upon which the plaintiff claimed the relief sought byhim from the District Court was that the D.F.C.C. Bank did not havethe power to grant a loan for the purpose for which the plaintiffsought that loan and in view of this the Bank is not entitled to resortto parate execution under section 4 of the Recovery of Loans byBanks (Special Provisions) Act, No. 4 of 1990 by way of aResolution adopted by the Board of Directors of the Bank.
The argument for the plaintiff was that under section 5 of theDevelopment Finance Corporation Act, No. 35 of 1995 as amend-ed it could exercise the powers given by that section only in carry-ing out the purposes of the Corporation set out in section 4 of theAct. According to said section 4 the purposes of the Corporationshall be “to assist in the promotion, establishment, expansion andmodernization of private industrial, agricultural and commercialenterprises in Sri Lanka.” Within the meaning of section 18 of thesaid D.F.C.C. Act, “Commercial enterprise” includes an enterprisenot falling within the description of an agricultural or industrialenterprise, which shall be conducive to the economic develop-ment of Sri Lanka.” In view of the provisions set out above it is theargument of the plaintiff that the business of selling fast foods andrunning a restaurant is not an enterprise which is ‘conducive to theeconomic development of Sri Lanka’ and therefore granting loanfacilities to the plaintiff’s business did not fall within the purposes ofthe D.F.C.C. and therefore under section 5 of the said D.F.C.C. Actthe Bank had no power to grant the said loans to the plaintiff. It is
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stated in the written submissions filed in this Court on behalf of theplaintiff-respondent that ‘where the lending or the grant of the loanis itself void it cannot give rise to a valid debt…. and hence nomoney is due.’
This submission, as well as the argument on which it is based,is misconceived in law and is therefore untenable. Section 4 of theD.F.C.C. Act which sets out the purpose of the D.F.C.C. states
‘To assist in the promotion, establishment, expansion andmodernization of private industrial, agricultural and commer-cial enterprises in Sri Lanka”.so
The plaintiff’s business of selling fast food and running arestaurant is a commercial enterprise with the simple and ordinarymeaning of that phrase. It is a private enterprise. Therefore primafacie the plaintiff’s private commercial enterprise is an enterprisecontemplated for the purposes of the D.F.C.C. as set out in section4 of the D.F.C.C. Act.
However the plaintiff’s argument that his enterprise not beingan enterprise which is conducive to the economic development ofSri Lanka is not an enterprise contemplated by section 4 of theD.F.C.C. Act is based on the definition of commercial enterprise set 90out in section 18 of the D.F.C.C. Act. The relevant part runs as fol-lows.
“Commercial enterprise includes an enterprise not falling with-in the description of an agricultural or industrial enterprisewhich shall be conducive to the economic development of SriLanka”, (emphasis added)
The plaintiff’s argument has been formulated by overlookingthe significance of the word ‘includes’ used in the above quoteddefinition. If the definition has used the word ‘means’ instead of theword ‘includes’ the plaintiff’s argument is tenable. Maxwell says that 100“Sometimes, it is provided that the word shall 'mean” what the def-inition section says it shall mean: in this case, the word is restrict-ed to the scope indicated in the definition section. Sometimes, how-ever, the word “include” is used in order to enlarge the meaning ofwords or phrases occurring in the body of the statute; and when itis so used these words or phrases must be construed as compre-
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hending, not only such things as they signify according to their nat-ural import, but also those things which the interpretation clausedeclares that they shall include. In other words, the word in respectof which “includes” is used bears both its extended statutory mean-ing and its ordinary, popular and natural sense whenever thatwould be properly applicable.” Maxwell Interpretation of theStatutes 12th Edition, page 270.
Bindra, in his work Interpretation of Statutes explains the sig-nificance of the word includes in definition clauses in statutes. “It isa well known rule of interpretation that the word “include” is usedas a word of enlargement and ordinarily implies that somethingelse has been given beyond the general language which precedesit: to add to the general clause a species which do not naturallybelong to it.” Page 988, 8th Edition. He goes on to say this. “It iswell known that the Legislature uses the word ‘means’ where itwants to exhaust the significance of the term 'defined' and the wordincludes where it intends that while the term defined should retainits ordinary meaning its scope should be widened by specific enu-meration of certain matters which its ordinary meaning may or maynot comprise so as to make the definition enumerated but notexhaustive.” Page 989.
Thus the phrase ‘commercial enterprise’ in the D.F.C.C. Acthas to be interpreted in its ordinary and natural sense, the extend-ed meaning given to it would include within the phrase ‘commer-cial enterprise’ any other enterprise not falling within the descriptionof an agricultural or industrial enterprise which shall be conduciveto the economic development of Sri Lanka.Thus the plaintiff’s busi-ness falls within the ambit of the D.F.C.C. Act in its ordinary andnatural sense of a commercial enterprise . Therefore it would beincorrect to say that the business of the plaintiff is not one fallingwithin the purposes of the D.F.C.C. Act. (emphasis added)
The learned District Judge has adopted the plaintiff’s argu-ment and has held that the loan granted by the Bank to the plaintiffis a loan given contrary to section 4 of the D.F.C.C. Act. For the rea-sons I have set out above this view is erroneous in law and there-fore is untenable. In considering the plaintiff’s argument the learnedJudge should have considered whether it was open to the plaintiffto come to Court on the basis that the Bank had no power to grant
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him the loans in question. The plaintiff has applied for, consentedto take and had in fact taken the loans from the Bank. The learnedJudge should have considered whether the plaintiff is estopped inlaw from challenging the power and the right of the Bank to grantthe loan. There is a total failure to consider this aspect.
The learned judge has then referred to the Preamble of the 150Recovery of Loans by Banks (Special Provisions) Act, No. 4 of 1990,which reads as follows “An Act to provide for the recovery of loansgranted by Banks for the economic development of Sri Lanka….”Having earlier held that the running of a fast foods sales outlet and arestaurant are not acts connected with or conducive to the economicdevelopment of Sri Lanka, the learned Judge has come to the con-clusion that the provisions of Act, No. 4 of 1990 cannot be utilized torecover loans granted to the plaintiff. This view is erroneous for tworeasons. Firstly, the Preamble, of an Act cannot be utilized to cut downor restrict a clear provision in the Act. If the enacting words admit only 160one construction, that construction will be given effect to even if it isinconsistent with preamble. Attorney General v H.R.H. PrinceEarnest of HanoveW Section 22 of Act, No. 4 of 1990 defines ‘loan’as “a loan of money and includes any overdraft or advance or anyother monetary accommodation by whatever name or designationcalled.” There is no requirement in the said definition that the loanshould have been granted for the economic development of SriLanka. Even in Section 4 of the Act, No. 4 of 1990 there is no refer-ence to a loan granted for the economic development of Sri Lanka. Itmerely refers to any loan. Therefore there was no justification for the 170learned Judge to hold that the powers given under section 4 of Act,
No. 4 of 1990 are confined to the recovery of loans given for the eco-nomic development of Sri Lanka.
Secondly, even if one hold that what is recoverable under sec-tion 4 of Act, No. 4 of 1990 are only those loans given for the eco-nomic development of Sri Lanka still there was material that the loanshave contributed to the economic development. The plaintiff in para-graph 21 (b) of the plaint has stated that “there are 110 employeesworking in the said Fast Food Outlet and Restaurant and if the prop-erty is sold they would lose their employment. This indicates that the isoplaintiff’s business has generated a considerable number of employ-ment opportunities. Creation of employment opportunities is an
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aspect of economic development. For these reasons the learnedJudge’s view that the Bank cannot proceed to recover the plaintiff’sloans under Section 4 of Act, No. 4 of 1990 was erroneous.
In this case there was no dispute that the Bank has grantedloans to the plaintiff and that he was in default. The property sought tobe auctioned has been mortgaged to the Bank as security for the loan.Thus all conditions necessary to pass a resolution in terms of Section4 of Act, No. 4 of 1990 have been satisfied. However in considering 190whether the petitioner has a prima facie case the Judge has erredboth in law and in fact. He has taken irrelevant matters into consider-ation and failed to properly consider the relevant matters.
The plaintiff has by mortgage bond No 327 dated 19.6.1996mortgaged certain movable properties as security for a loan of Rs.550,000/-. The learned Judge has held that since the three mortgagebonds referred to in the resolution relate to separate properties thereshould have been separate resolution for each property. No reasonshave been given for this conclusion. There is no requirement to haveseparate resolutions in respect of each property mortgaged. Two 200mortgage bonds relate to the same property and the third mortgagebond relates to items affixed or fastened to the building situated in themortgaged property.-The bond specifically states that such movableproperty fastened to the building shall when so fastened be deemedto be land. Thus it is clear that two mortgage bonds relate to the sameland and the same building and the 3rd bond relates to movable prop-erty fixed and fastened to the same building and thus considered tobe a part of the land. Therefore there is nothing to prevent the bankfrom adopting one resolution for the same property mortgaged underthree separate bonds and the learned Judge’s view that there should 210have been three resolutions and the inclusion of the same property(mortgaged by three bonds) is bad is an erroneous view.
In the written submissions filed by the plaintiff respondent, it isstated that in terms of section 4 of the Recovery of Loans by BanksAct the Board of Directors of the Bank has the power to authorize anyperson specified in the resolution to sell the mortgaged property byany person and the resolution which authorizes Shockman andSamarawickrama is invalid as that entity is not a person.TheInterpretation Ordinance (Cap 2) person is defined as including any
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body of persons corporate or unincorporated. This definition is an 220answer to that argument.
The learned Judge has also failed to consider the balance ofconvenience. According to the learned Judge’s finding the plaintiff hasobtained the loans from the Bank and that he was in default. In thiscontext it is appropriate to quote the words of Amarasinghe, J. inYashoda Holdings v The People’s BankS2) at 386 and 387.Amerasinghe, J. said as follows.
“I am of the view that balance of convenience in this case'lies inallowing the normal banking laws and procedures to operate.
The equities are in favour of the Bankits’ loan portfolio, liq- 230
uidity and profitability have been and will continue to be affect-ed if it cannot take such measures as it is entitled in law to take
to protect its interestsIf the Bank, acting in accordance with
the law, takes certain steps that might eventually harm the appel-lant’s business, the appellant (sic) (the bank) should not berestrained, for the harm sought to be prevented does not. relateto acts.that are unlawful or wrongful, whatever the appellantspreference might be in the matter. Then harm if any that might becaused would be that which the appellant has brought upon itselfby failing to liquidate its debts.”240
Amarasinghe, J. having referred to the indebtedness of theappellant further said as follows.
“…the application for an injunction must also fall on the groundthat a prima facie case had not been made out in the sense thatthere is a bona fide contention between the parties on the ques-tion of indebtedness.” p387.
In this case the plaintiff’s conduct in asserting that the Bank hadno power to grant him the loan which was sought, obtained and uti-lized by him puts the plaintiff’s bona fides in doubt. What I statedabove indicate that his argument is not tenable in law.250
As Amarasinghe, J. has stated the power which the Court pos-sesses of granting injunction should be very cautiously exercised andonly on clear and satisfactory grounds. In this case the court has notexercised its power in that manner.
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For the reasons l have set out above I hold that the plaintiff hasnot made out a prima facie case and the balance of convenience wasand is with the Bank. The Court’s decision to issue an interim injunc-tion is wrong in law. I therefore allow the appeal and set aside theorder of the learned District Judge dated 20.10.1999. The plaintiffshall pay a sum of Rs. 20,000/- as costs of this appeal to the Bank. 260
BALAPATABENDI, J. – I agreeApplication allowed.
Editors Note:
The Supreme Court in SC Spl LA 134/03 on 2.12.2003 refused SpecialLeave to Appeal to the Supreme Court.