HATTON NATIONAL BANK LIMITED
HITHANARCHCHI AND ANOTHER
SUPREME COURTDHEERARATNE, J.
W1JETUNGA, J. ANDBANDARANAYAKE, J.
SC APPEAL NO. 35/98HCLA NO. 8/98HC (CIVIL) NO. 143/97(1)
29™ NOVEMBER, 1999
Lease – Leasing agreement with a Bank – Lease of a bus – Mortgage ofImmovable property as security for payment of rentals – Terminationof the lease for default of payments – Right of the Bank to sell mortgagedproperty for recovery of monies due under the lease ■ Recoveries ofLoans by Banks (Special Provisions) Act, No. 4 of 1990.
The defendant Bank (the appellant) leased a bus to the plaintiffs (therespondents). The lease agreement provided Inter alia, for the payment ofmonthly rentals and the recovery of the entire amount and the leasedproperty on default of rentals. Clause 14 of the agreement required theappellant (the Bank) to insure the vehicle at the expense of the lessee (theplaintiffs) during the term of the lease agreement. As security for duepayments under the lease, the 2nd plaintiff (the 2nd respondent) by a mortgagebond, mortgaged and hypothecated to the Bank an Immovable propertybelonging to him.
The 1st plaintiff (the 1st respondent) defaulted in the payment of rentalswhereupon the Bank terminated the lease in writing with effect from 1.2.94.The 1st plaintiff failed to deliver possession of the bus to the Bank, as hewas obliged to do, and thereafter, while the bus was In the custody of the1st plaintiff, it met with an accident on 27.04.94 and was destroyed. As onthat date there was no valid Insurance of the vehicle by reason of the factthat the payment of the cheque which had been sent to the InsuranceCorporation had been stopped by the 1st plaintiff; and notwithstanding awritten notice by the corporation on 22.12.83 that If payment was notmade within two weeks therefrom, the policy would be cancelled, the 1stplaintiff failed to make payment. Hence no claim for the repair of the buscould be obtained from the Insurance Corporation.
SC Hatton National Bank Limited v. Htthanarachchl and Another 253
(Wljetunga , J.)
The appellant Bank acting in terms of the Recovery of Loans by Banks(Special Provisions) Act, No. 4 of 1990 arranged to sell the propertymortgaged to the Bank by auction sale. The Provincial High Court of theWestern Province (Commercial) granted an ex parte enjoining order tothe plaintiffs – respondents In an action Instituted by them, preventing thesale on the basis that In terms of Clause 14( 1) of the lease agreement It wasthe duty of the Bank to Insure the vehicle. After Inquiry, the High Courtgranted an Interim injunction to the same effect.
The High Court Judge erred In granting an Interim injunction In theparticular circumstances of the case.
Per Wljetunga, J.
“the learned High Court Judge could not possibly have placed the
blame on the appellant Bank for the non-renewal of the Insurance policy,consequent to which the 1 st respondent was unable to obtain compensationfrom the insurers to repair the bus”.
APPEAL from judgment of the High Court of the Western Province (Com-mercial)
Romesh de Silva, P.C. with Palitha Kumaraslnghe for defendant -appellant.
R.K.W. Goonasekera with M. Slvananthan for plaintiffs – respondents.
Cur. adv. vult.
February 24, 2000.
WLJETUNGA. J.The defendant-appellant (‘appellant*) entered Into a leaseagreement bearing No. 2310/007/026 on 13.11.92 with theplalntiffs-respondents (‘respondents’) to lease a motor bus tothe said respondents for a period of 48 months, subject to theterms and conditions of the said lease agreement.
By Mortgage Bond No. 285 dated 13.11.92 attested byN.M.C.P Weerasingha, Notary Public, the respondents mortgagedand hypothecated an Immovable property belonging to the 2nd
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plaintiff-respondent (‘2nd respondent’) to the appellant assecurity for the due performance and payment of all rentalsunder the said lease agreement.
By the said lease agreement the respondents agreed interalia :
to pay monthly rentals to the appellant without default.
if the respondents fail to pay any such rentals, theappellant is entitled to claim and/or receive immediatepayment from the respondents of the entire amount ofthe total rentals payable under the agreement for thefull term of the lease and to make a demand to therespondents for the return of the leased property andto take over possession of such property and toterminate the lease and to receive compensation fromthe respondents.
upon termination of the said lease, the respondentsshould deliver and surrender the leased property to theappellant in the condition in which it was received bythe respondents.
The appellant states that the 1st respondent failed, neglected,and defaulted in the payment of rentals and the appellant bywriting dated 18.1.94 terminated the lease agreement with effectfrom 1.2.94.
The 1st respondent failed to deliver possession of the saidbus the subject matter of the lease agreement, to the appellantafter 1.2.94 and the 1st respondent was thus in wrongful andunlawful custody of the said bus.
The appellant further states that, as evidenced by thecertified statement of accounts submitted to Court, a sum ofRs. 1,619,978/- was due and owing from the 1st respondent tothe appellant as at 15.12.96.
SC Hatton National Bank Limited v. Hlthanarachchtand Another 255
(Wlletunga , J.)
The appellant also states that :
while the said bus was in the wrongful and unlawfulcustody of the 1st respondent as aforesaid, it met withan accident on 27.4.94 due to negligent driving andwas completely destroyed.
the appellant and/or the 1st respondent were not paidany compensation by the Insurance Corporation as the1st respondent had stopped payment of the cheque givenby him for insurance premium and thus there was novalid Insurance cover at the time of the accident.
the Board of Directors of the appellant, acting underthe provisions of the Recoveries of Loans by Banks(Special Provisions) Act, No. 4 of 1990, adopted aResolution to sell the property mortgaged to theappellant as security for the repayment of the moneydue to the appellant.
Subsequently, the Auctioneer fixed a date for the auction .sale of the said property, whereupon the respondents institutedproceeding bearing No. 4796/Spl. in the District Court ofColombo and obtained an enjoining order ex parte preventingthe appellant from selling the mortgaged property. The appellantthen filed a statement of objections against the application ofthe respondents. By order dated 3.10.97, the District Court ofColombo rejected the said plaint for want of jurisdiction.
Thereafter, the respondents instituted proceedings in theProvincial High Court of the Western Province (Commercial)bearing No. HC (Civil) 143/97 (1) and obtained ex parte anenjoining order preventing the appellant from selling themortgaged property by auction and also obtained notice ofinjunction. After inquiry, by order dated 2.4.98, the learned HighCourt Judge allowed the application of the respondents andissued an interim injunction preventing the appellant bank fromselling the property mortgaged to the bank, by auction.
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The appellant submits that the learned High Court Judgemade the said order on the basis that. In terms of Clause 14(1)of the lease agreement, It was the duty of the appellant to insurethe said bus. However, it is submitted that the learned HighCourt Judge had failed to consider the fact that the said busmet with the accident while It was in the wrongful custody ofthe 1st respondent, as the lease agreement had been terminatedby the appellant prior to the accident, due to the Is1 respondent'sfailure to pay the rentals due.
It Is further submitted that the learned High Court Judgewas of the view that the 1st respondent had failed to pay therentals due on the lease agreement as the bus met with theaccident, whereas In fact the bus met with the accident afterthe termination of the lease agreement on account of the defaultof the 1st respondent.
The appellant had sought leave to appeal to this Court fromthe aforesaid order of the learned High Court Judge. By orderdated 30.4.98, this Court had granted leave to appeal on thequestion “whether the learned Judge of the High Court erred ingranting an interim injunction on the basis that. In terms ofClause 14(1) of the lease agreement, it was the duty of the(appellant) to Insure the vehicle.”
Arising for consideration therefrom is the question whetherthe appellant bank was obliged to insure the said vehicle afterdue termination of the lease agreement.
By its notice of termination dated 18.1.94, the appellantbank informed the respondents that the said contract was sixmonths in arrears as at 31.12.93 and if the said arrears werenot settled on or before 31.1.94, the lease under the agreementwould be deemed to be terminated with effect from 1.2.94. Asadmittedly there had been no payment of arrears by the 1strespondent, the agreement had thus been terminated with effectfrom 1.2.94.
SC Hatton National Bank Limited v. Htthanarachcht and Another 257
(Wl/etunga , J.)
Article 14 of the lease agreement provides that the appellantbank should have the property insured In the name of the lessorbut at the expense of the lessee during the term of the leaseagreement. Article 17 dealing with default provides inter aliathat, in the event of the lessee being in breach of the agreement(as by failure to make due payment of rentals), the lessor shallhave the right to terminate the lease. The obligation of the lessorto have the property insured at the expense of the lessee beingfor the duration of the lease agreement, on its due terminationby the lessor as provided for in Article 17, there is no furtherobligation on the appellant bank to have the vehicle Insuredafter such termination.
The 1st respondent defaulted In the payment of rentals dueunder the lease agreement long before the accident occurred.In fact, In several letters addressed to the appellant bank, the1st respondent admitted such default and promised to takeremedial action. But he failed to do so. It must also be mentionedthat the bus was destroyed in this accident after the terminationof the lease agreement and while it was still in the custody ofthe 1st respondent, when it was being driven for or on behalfthe 1st respondent. The 1st respondent having stopped paymenton the cheque aforementioned for renewal of the insurancepolicy, he must be presumed to have knowledge of the fact thatthe vehicle was not insured at the relevant time. In any event,the Insurance Corporation itself had given notice to the 1strespondent by registered post on 22.12.93 that if payment wasnot made within two weeks therefrom, the policy would becancelled. The 1st respondent therefore has only himself to blamefor the destruction of this vehicle as aforesaid, with no possibilityof obtaining compensation for such loss from the insurers.
There was before the learned High Court Judge theappellant’s copy of the notice dated 22.12.93 sent underregistered cover to the 1st respondent by the Manager, MotorDepartment of the Insurance Corporation of Sri Lanka statinginter alia that the cheque for Rs. 30,033.92 was returned bythe bank stating that payment was stopped by the drawer andrequesting payment by postal order, money order or cash within
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the next fortnight from the date of that letter, failing which theCorporation would be compelled to cancel the relevant motorpolicy.
The notice of termination of the lease agreement dated18.1.94, addressed to the 1st and 2nd respondents by theappellant bank, stating that unless the arrecu's were paid, thelease under the agreement would be deemed to be terminatedwith effect from 1.2.94 was also available to the High CourtJudge.
Article 14( 1) of the lease agreement limits the obligation ofthe lessor to “keep such insurance in full force and effect duringthe term of the lease agreement.”
Against this background, the learned High Court Judgecould not have possibly placed the blame on the appellant bankfor the non-renewal of the insurance policy, consequent to whichthe 1st respondent was unable to obtain compensation fromthe insurers to repair the bus.
It is not necessary for me to consider the other submissionsmade by counsel which fall outside the parameters of thequestion on which leave to appeal has been granted.
For the reasons aforesaid, I hold that the learned High CourtJudge was in error in granting an interim injunction in theparticular circumstances of this case, on the basis that, in termsof Clause 14(1) of the lease agreement, it was the duty of theappellant to insure the vehicle. I therefore set aside the saidorder of the Provincial High Court of the Western Province dated2.4.98 and dismiss the application of the plaintiffs-respondentsfor an interim injunction, with costs.
DHEERARATNE, J.I agree.
BANDARANAYAKE, J.- 1 agree.
Appeal allowed; application for interim injunction dismissed.