020-SLLR-SLLR-2007-V-2-GOOD-FELLOWS-PVT-LTD-v.-PEOPLES-BANK.pdf
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GOOD FELLOWS (Pvt.) LTDv
PEOPLE S BANK
COURT OF APPEALSRISKANDARAJAH, J.CA 546/2004AUGUST 11. 2005OCTOBER 14, 2005NOVEMBER 6, 2006JANUARY 8, 11,2007
Writ of Certiorari – Parate Execution – People's Bank Amendment Act, No.32 of 1986 – Appropriation of payments – Secured and unsecured debts -Agreement between parties? – Question of disputed facts – Conflict ofevidence – Does writ lie?
The petitioner company sought by way ol writ of certiorari to quash thedecision of the Bank to sell by parate execution the mortgaged propertyThe petitioner had also obtained overdraft facilities and export trustfacilities.
The petitioner had sought permission from the respondent Bank to makemonthly payments of US$ 100,000/- in favour ol the short term loan with aview of settling this facility which was secured by the mortgage of property.The respondent contending that there was no such agreement appropriatedthe payments to a set off against unsecured liabilities, and passed aresolution to sell the mortgaged property by parate execution.
The petitioner challenged the said decision, to parate execute the properlymortgaged, as there was an agreement, that, the payments would beappropriated against the mortgage.
It was Ihe contention of the respondent that there was neither a specificrequest by the petitioner nor an agreement reached between the partieswith regard to the appropriation of payments, and as a prudent banker therespondent has applied the funds firstly, in reduction of unsecuredliability.
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Held:
Whether there was an agreement or not at the time of making thepayments and the question whether all things are equal in the givencircumstances to consider the interest of the debtor more favourably,more than that of the creditor are matters of fact and these facts arein dispute.
Where the question depends solely on a disputed question of factabout which there is a conflict of evidence, Court will not interfere asit cannot be determined in writ proceedings.
APPLICATION for a Writ of Certiorari.
Cases referred to:
Fernando v Fernando 55 NLR 465.
Ramanathan Chatty v Sarkuman 15 NLR 335.
Cracklawv Clements 12 NLR 67.
R. v Fullham etc Rent Tribunal Exp. Zerek 1951 1 KB 1.
R. v Home Secretary exp Zamir 1980 Al 970 at 949.
E.M. Mahishpriya Ekanayake and two others v People's Bank CA
1655.2002 C.A.M. 28.3.2005.
M.U.M. Ali Sabry with S.M. Gadafei for petitioner.
S.J. Mohideen with Visaka Gunapala for respondent.
Cur.adv.vult.
March 22, 2007.
SRISKANDARAJAH, J.The Petitioner is a Company limited in liability incorporatedunder the Company Laws of Sri Lanka. The petitioner Companyis registered in terms of the Board of Investment of Sri LankaLaw No. 40 of 1978. The petitioner company engaged in thebusiness of exporting garments in a mass scale abroad,especially to the United States of America.
The respondent is a statutory body incorporated as a Bank bythe People’s Bank Act No. 29 of 1961. The powers and functionsof the respondent Bank are stipulated in Section 5 of the saidAct. This section enables the respondent to inter alia carry outcommercial banking activities.
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The petitioner submitted that the petitioner has maintainedbusiness relationship with the respondent Bank which inter aliaincludes maintaining current accounts, obtaining over draftfacilities and bank loans of special nature such as Short TermLoan facilities (STL) and Export Trust Receipts facilities (ETR).
The petitioner to obtain Short Term Loan facilities (STL)entered into the following mortgage bonds:
Mortgage Bond bearing No. 1790 dated 9th January 1996attested by Gnana Ekanayake N.P. the petitioner pledged and/ormortgaged the property described in the 1st Schedule to thepetition in favour of the respondent Bank to the value ofmaximum sum of US$ 165,000 equivalent to Sri Lankan Rs.8.085,000/- (P3 & P4).
Mortgage Bond bearing No. 1977 dated 13th September 1996attested by Gnana Ekanayake N.P. the petitioner pledged and.ormortgaged the lease hold rights of the property described in 2ndSchedule to the Petition in favour of the respondent Bank up toa maximum sum of US$ 177,000 equivalent to Sri LankanRs. 9.872,000/- (P5).
The petitioner to obtain Export Trust Receipt facilities (ETR)submitted in mortgage certain machineries in favour of therespondent Bank up to a maximum sum of US$ 280,000. ByMortgage Bond bearing No. 1999 dated 8th October 1996attested by Gnana Ekanayake N.P. (P6).
The petitioner submitted that as a result of the set backsexperienced by the petitioner company it could not service theloan facilities granted by the respondent Bank in terms of thepayment schedules agreed upon between the parties. Thepetitioner submitted that as at 31st July 2000 a sum of US$542,430 was due to the respondent Bank from the petitioner onthe said Short Term Loan Facility. The respondent's letteraddressed to the petitioner is annexed as P7 which indicates thatthe present capital outstanding on rescheduled Short Term Loanas US$ 542,430, the total capital out standing as US$ 6,348,859and accumulated interest up to 31.07.2000 is US$ 762,842. Thepetitioner in response to the above letter by its letter dated
(PS) sought permission to make monthly payment of
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US$ 100,000/- in favour of the Short Term Loan with a view tosettling the said STL facility, the respondent denied the receipt ofthe letter of 15.08.2000 (PS). The respondent contended that itwas neither agreed verbally nor in writing to apply funds inreduction of Short Term Loan facilities. As set out in the said offerletter all facilities were amalgamated except for unpaid L/C Billliability and recoveries made. Consequent upon the stoppage ofsettlement of facilities by the petitioner the facilities weresegregated and the amounts recovered were set off againstunsecured facilities. The respondent contended that havingrequested the petitioner to settle its liabilities and upon theirfailure or in the absence of any meaningful attempt by thepetitioner to repay, having sent a registered letter dated
a resolution dated 30.08.2002 was passed forrecovery of a sum of US$ 3,854,945.35 which matter wascommunicated to the petitioner by letter dated 10.09.2002 andthe said Resolution was advertised in the newspaper of
(P12).
By the People's Bank Amendment Act No. 32 of 1986 therespondent Bank was empowered with the right of ParateExecution of Mortgaged property, to facilitate the recovery ofmoneys in default in circumstances where loans/overdrafts aresecured against the mortgage of property.
Section 29D provides;
Subject to the provisions of section 29E, the Board may byresolution to be recorded in writing authorise any personspecified in the resolution to sell by public auction anyimmovable or movable property mortgaged to the bank assecurity for any loan in respect of which default has beenmade in order to recover the whole of the unpaid portion ofsuch loan, and the interest due thereon up to the saletogether with the moneys and costs recoverable underSection 29 I"
Under the above provision, the respondent bank is legallyentitled to pass a resolution to sell a property that was mortgagedto the bank as security to recover the unpaid portion of the loan.
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The respondent submitted that there was neither a specificrequest by the petitioner nor an agreement reached between theparties with regard to the appropriation of payments. As aprudent Banker the respondent has applied the funds firstly, inreduction of unsecured liabilities.
According to the petitioner the thrust of the matter in issue is:
Was there an agreement between the parties at the timeof making payments? or
If there was no agreement about it, what would be the lawand rules applicable in respect of appropriation and inwhose favour such appropriation stands?
In this regard the petitioner submitted C.G. Weeramanthry onLaw of Contracts Vol. II page 676 paragraph 701:
"The Debtor's right to declare at the moment he makes paymentwhich of his different debts he wishes to reduce is based on thePrinciple of Roman Dutch Law that "all things being equal, theinterest of the Debtor must prevail over those of the Creditor."
The petitioner has also cited Fernando v Fernando^'),Ramanathen Chettyv Sarkumarf2), Cracklaw v Clements(3). Therespondent submitted that the cases referred to by the petitionerare based on certain principles laid down several decades agowhen the laws in respect of Banking was quite different. Theposition in the cases cited were in respect of instances where inrespect of one Mortgage moneys had been paid at different timeswithout a clear indication of how it has to be appropriated, was itto be set off against interest or capital, or whether it helped todefeat prescription. The respondent contended that the petitionerhas clearly stated that it has defaulted in payment owing to set-backs they suffered in their trading activities. The petitioner isfalsely making the claim that it came to know for the first timeonly by letter dated 29.08.2002 that the US$ 6000.000 paid bythem had been appropriated to a different facility. This positionhas been denied by the respondent.
The main contest of the petitioner and the respondents arebased on the agreement between the parties at the making thesaid payment of US $6000,000. If there is no agreement as
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learned author C.G. Weeramanthry stated on Law of ContractsVol. II page 676 paragraph 701: "all things being equal, theinterest of the Debtor must prevail over those of the Creditor".The question whether there was an agreement or not at the timeof making the said payment and the question whether all thingsare equal in the given circumstances to consider the interest ofthe debtor more favourably than that of the creditor are mattersof facts and these facts are in dispute.
In Rv Fulham etc. Rent Tribunal exp. Zerek(A Deviiin J,,held:
"Where the question of jurisdiction turns solely on adisputed point of law, it is obviously convenient that thecourt should determine it then and there. But where thedispute turns to a question of fact, about which there is aconflict of evidence, the courts will generally decline tointerfere".
In R v Home Secretary exp Zamiii5) at 949 Lord Wilberforcesimilarly described the position of the court, which hearsapplications for judicial review:
"It considers the case on affidavit evidence, as to whichcross-examination, though allowable does not take place inpractice. It is, as this case will exemplify, not in a position tofind out the truth between conflicting statements.*
In EM. Maheshpriya Ekanayake and two others v People'sBantfP) the court held:
"The facts disputed in this case are on the quantumrecoverable. The error on the calculation of quantum will notaffect the jurisdiction of the bank to act under Section 29Dof the People's Bank Amendment Act. As there is material toshow that the property of the petitioner was mortgaged tothe respondent bank as security for loan and default hasbeen made by the petitioner to settle the loan therespondent Bank is empowered to have recourse to ParateExecution under Section 29D.
The calculation of the sum recoverable by the respondentBank from the petitioners is a matter of fact. In these
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proceedings, the Court cannot ascertain the correctness ofthe sum recoverable from the petitioners without evidence.
In any event under section 29M of the People's Bank(Amendment) Act the respondent bank is only entitled torecover the sums of money that is legally due to therespondent and should return to the petitioners the balanceof the proceeds of the sale. The dispute is in relation to thequantum of the sum recoverable from the respondents onthe mortgage bonds executed and as this is a question offact this Court is not inclined to interfere with the decision ofthe Board of Directors of the respondent Bank."
In the instant case it is an admitted fact that the petitioner hasmortgaged the relevant properties to the bank to secure theaforesaid loans and the Board of Directors of the Bank haspassed a resolution to sell the said property as the petitioner hasdefaulted the payment of the said loan. Whether the petitionerhas paid certain sums of money to the credit of the said loanaccounts? Was there an agreement between the petitioner andthe bank at the time of making the payment in dispute? Was themoney paid to a particular account and it was appropriated to adifferent account of the petitioner with or without the consent ofthe petitioners? These are questions of fact. As the matters indispute are questions of fact and it cannot be determined inthese proceedings this court is not inclined to interfere with theresolution of the respondent Bank dated 27.11.2002 markedP22. Therefore the court dismisses this application withoutcosts.
Application dismissed.