060-SLLR-SLLR-2005-V-2-JAYAWARDENA-vs-SAMPATH-BANK-LTD-AND-ANOTHER.pdf
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(2005) 2 Sn L R
JAYAWARDENA
VS
SAMPATH BANK LTD AND ANOTHER
COURT OF APPEALSOMAWANSA J (P/CA),
WIMALACHANDRA J,
CALA 19/05
D.C. COLOMBO 20533/LMARCH 15, 2005,
MAY 18, 2005
Recovery of Loans of Banks (sp. Pro) Act – 4 of 1990 – Sections 8, 9, 15(1), 16(1)
Resolution to sell – Third Party mortgages -Challenged in High Court – failure
Special Leave to Supreme Court refused – Bank seeking to recover possession
third party relying on the later Supreme Court decision ? – third – Party mortgagevoid – Applicability of the said decision change of Law by a decision of a higherCourt – Res Judicata- Laesio enormis.
The Respondent Bank sought to ‘Parate Execute’ the property owned by thePlaintiff Petitioner (Director) and mortgaged for the facility granted to the 2ndRespondent (Company) as there was default. The Plaintiff and the 2ndRespondent challenged the said decision in the High Court, stating that, theproperty of the Plaintiff is not liable to be sold. The injunction sought wasrefused and the Special Leave to Appeal application to the Supreme Courtwas refused subsequently the action was dismissed.
The Bank thereafter proceeded to sell the property by public auction, and asthere were no bidders purchased same at a nominal price. Action thereafterwas instituted by the Bank to recover possession and when decree Nisi wasmade absolute, the order was challenged in the Court of Appeal, the Court ofAppeal rejected the application.
The Plaintiff thereafter filed a separate action seeking a declaration that heis the owner and an injunction preventing the Bank from taking over possession.The injunction was not granted. The Plaintiff thereafter sought leave to appealand leave was granted. The Plaintiff Petitioner contended that as the SupremeCourt in a subsequent decision had held that, third party mortgages are void,the Bank Could not have sold the property belonging to the Plaintiff Petitioner,which was given to secure the loan granted to the company.
HELD
(i) The cause of action in the first case and the present case in the same.
(it) The Plaintiff cannot now re-agitate the same matter by instituting a freshaction, and he has no right to have the action re-tried in a different form.
CA
Jayawardena Vs. Sampath Bank Ltd., and Another
(Wimalachadra J.)
341
As to the effect of change of law by decision of a higher Tribunal the Courthas to apply the Law as it is at the time when the decision is given and thefact that the law is subsequently altered by a decision of a higher court orby the legislature gives no right to have an action restored ;
Per Wimalachandra J
“Overruling of the previous decision by the Supreme Court is a declarationthat the supposed ruling in the Supreme Court. Leave to Appeal Applicationnever was the Law. The over-ruling applies even to pending cases withretrospective effect; however in our view it does not apply to a case whichhas been concluded leaving only the execution of the decree.”
The doctrine of laesio enormis would not apply. When there are no biddersthe Bank can purchase the property, the price paid by the Bank to purchaseis immaterial as the Bank is obliged to re-sell the property in order torecover the full amount due to the Bank – Bank has no power to keep theproperty for itself.
The earlier orders made against the Plaintiff Petitioner operate as resjudicata.
Application for leave to Appeal with Leave being granted from an order of the
District Court of Colombo
Cases referred to :
S. C. Appeals 5 and 9/2004 – SCM 1.4.2005
Katiratamby vs Parupathipillai – 23 NLR 209
Derrick vs Williams – 1939 2 All ER 559
Rose vs Ford – 1937 3 All ER 359
Ikram Mohamed P. C., and M. S. A. Wadood and M. C. M. Muneer for Plaintiff
Petitioner
Palitha Kumarasinghe with Nuwan Rupasinghe for Defendent Respondents
Cur adv vult
October, 2005.
Wimalachadra J.
This is an application for leave to appeal from the order of the learnedAdditional District Judge of Colombo dated 07.01.2005 by that order thelearned Additional District Judge dismissed the plaintiff – petitioner’s(Plaintiff) application for an interim injunction.
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At the inquiry, both parties submitted comprehensive written submissionswith regard to the extension of the interim relief granted by this Court andalso on the question of granting leave.
Before we proceed to discuss the merits of this application for leave toappeal against the aforesaid order of the learned District Judge, it is pertinentto consider briefly the facts relevant to this application.
The plaintiff and the 2nd defendant – respondent company (the 2nddefendant) had obtained several banking facilities and as security mortgagedthe land and premises described in the schedule to the plaint. The plaintiffis a director of the 2nd defendant – company. Admittedly, the plaintiff andthe 2nd defendant had defaulted the re-payment of the said banking facilities.Thereafter the Board of Directors of the 1st defendant bank adopted aresolution to recover the amount due to the 1st defendant under theprovisions of the Recovery of Loans by Banks (Special Provisions) ActNo.4 of 1990, to sell the mortgaged property by Public auction. The 1stdefendant after having taken steps under sections 8 and 9 of the aforesaidAct advertised the property for sale by public auction. The plaintiff and the2nd defendant then filed action bearing No.5498/L in the District Court andsought a declaration that the bank (1st defendant) has no right to passsuch a resolution to sell the said property under the aforesaid Act No.4 of1990 and also sought an interim injunction on the ground that the plaintiffis only the mortgagor and not the borrower (the 2nd defendant) within themeaning of the said Act and hence the 1 st defendant (bank) is not entitledto exercise parate execution against the property mortgaged, which doesnot belong to the borrower, the 2nd defendant. As the District Court had nojurisdiction over the matter, the case was transferred to the CommercialHigh Court of Colombo. The said case was re-numbered as HC (Civil)No. 199/2000(1).
The Commercial High Court by its order dated 27.04.2001 refused theplaintiffs application for an interim injunction. Thereafter the plaintiff andthe 2nd defendant made an application for special leave to appeal to theSupreme Court against the said order dated 27.04.2001 on the groundthat the 1 st defendant (Bank) has no right to exercise parate executionagainst a property mortgaged by a person as security for loans obtainedby another person. That is, the bank has no right to exercise parateexecution in case of a property mortgaged by a person other than the
CA
Jayawardena Vs. Sampath Bank Ltd., and Another
( Wimalachadra J.)
343
borrower. The Supreme Court refused to grant leave to appeal and dismissedthe said application (vide document marked “N”, S.C. Minutes dated23.07.2001). After the Supreme Court dismissed the plaintiff’s application,he did not pursue the case No. HC (civil) 199/2000 (1) in the CommercialHigh Court and it appears that, it was later dismissed and decree wasentered.
Thereafter the 1st defendant proceeded to sell the said property byPublic auction, and the 1 st defendant bought the property as there wereno bidders. The Board of Directors of the 1 st defendant issued a certificateof sale under section 15(1) of Act No.4 of 1990. The 1 st defendant theninstituted proceedings in action No.6468/Spl in the District Court ofColombo in terms of section 16(1) of the aforesaid Act for the delivery of. vacant possession of the said property purchased by the 1 st defendant atthe auction. The Court issued a decree nisi and it was served on theplaintiff who appeared in court and raised certain legal objections. Thelearned judge having considered the objections raised by the plaintiff,rejected the objections and made the decree nisi, absolute. The plaintiffthen filed a leave to appeal application No. 416/2003 and a revisionapplication No. 1917/2003 against the said order of the learned judge inthe Court of Appeal. This Court on 11.01.2005 dismissed the leave toappeal application on the ground that there is no right of appeal againstthe said order. Admittedly the revision application No. 1917/2003 too wasdismissed on 25.04.2005 on the ground that it had not been supported interms of the Appellate court Rules.
Whilst the aforesaid applications CA No. 1917/2003 and CALA No.416/2003 were pending the plaintiff instituted the above mentioned actionNO.20533/L in the District Court, Colombo on 28.10.2004 pleading thatthe plaintiff was the lawful owner of the premises described in the scheduleto the plaint and that he had mortgaged the same by mortgage bondbearing No.1485 dated 14.11.1996 in favour of the 1st defendant – bank assecurity for the Banking facilities obtained by the 2nd defendant-company,of which he is a director. The plaintiff supported for an interim injunction,preventing the 1 st defendant from ejecting the plaintiff from the said propertyand restraining the 1 st defendant from reselling the same. The 1 st defendantfiled objections and after an inquiry the learned Judge made order on
refusing the plaintiff’s application for injunctive relief. It is againstthis order the plaintiff has filed this application for leave to appeal.
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When the matter came up on 18.02.2005 in the Court of Appeal tosupport ex-parte for interim relief, the Court granted a stay order restrainingthe 1st defendant – bank and its agents, servants and all those actingunder the 1st defendant from taking possession of the premises in suitand/or alienating and/or otherwise encumbering the said premises. Whenthe matter was mentioned on the notice returnable date, the 1 st defendantwas represented by a counsel and objected to the extension of the aforesaidstay order. The matter was fixed for inquiry on 15.03.2005 and on the dateof inquiry, counsel for both parties made submissions and thereafter agreedto file written submissions. Accordingly, written submissions were tenderedby both parties and the written submissions dealt with the question ofgranting leave to appeal as well.
In District Court action No.20533/L, the main relief prayed for by theplaintiff were;
a declaration that the plaintiff is the owner of the said propertiesdescribed in the schedule to the plaint.
a declaration that the public auction held on 11.10.2001 is void in lawand/or the plaintiff’s ownership to the said property has not passedto the 1 st defendant bank by the said sale and/or the 1 st defendant-bank is not the owner of the said property.
an interim injunction restraining the 1 st defendant from ejecting theplaintiff from the said premises pending the final determination of theaction.
The learned' President's Counsel for the plaintiff submitted that the learnedjudge dismissed the plaintiff’s application for the interim injunction prayedfor in the plaint mainly on the ground that the Commercial High Court inCase No. 199/2000(1) had decided that a 3rd party mortgagor comeswithin the definition of “borrower” and although that order is not binding onthe District court, the Commercial High court has clearly interpreted theintention of the legislature and it has been confirmed by the Court of Appealin two other cases. The learned High Court Judge in Case No. 199/2000 (1)had held that the word “borrower” in Act No. 4 of 1990 must be interpretedto include the mortgagor who had provided security, by mortgaging aproperty, for the loan obtained by the borrower.
The plaintiff and the 2nd defendant sought leave to appeal from thatorder. The supreme Court dismissed the said application for special leave
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(Wimalachadra J.)
to appeal holding that “we see no basis to grant special leave to appeal”(Vide- S.C. Special Leave to Appeal 14/2001, S. C. Minutes dated
)(1). It appears that the Supreme Court has held with the saidorder made by the Commercial High Court in Case No. HC. (Civil) No.199/2000(1). In the circumstances, as at the date of institution of this action(D. C. Case No.20533/L) on 28.10.2004 the law was that Banks are entitledto resort to parate execution under the Recovery of Loans by Banks(Special Provisions) Act No.4 of 1990, where a property is mortgaged by aperson as security for a loan obtained by another person (actual borrower).
Mr. Ikram Mohamed, P. C. submitted that the Supreme Court has nowby its judgment dated 01.04.2005 in S. C. Appeal Nos. 5 and 9/2004 (1)held that the provisions of the Recovery of Loans by Banks (SpecialProvisions) Act No.04 of 1990 will not apply in respect of a mortgage givenby a guarantor or a person as security for a loan obtained by anotherperson from a Bank. The learned President’s Counsel contended that theorder made by the Commercial High Court in Case No. 199/2000 (1) is anerroneous decision in view of the aforesaid Supreme Court decision in S.C. Appeal Nos. 5 and 9/2004.
The learned Counsel cited the case of Katiratamby Vs.Parupathipillai{2) where it was held that an erroneous decision on a purequestion of law does not prevent a Court from deciding the same questionarising between the same parties in a subsequent suit according to Law.The plaintiff by filling the District Court action No.20533/L against the Bankhas tried to re-agitate the same matter between the same parties in asurreptitious manner. The cause of action in the Commercial High CourtCase No. 199/2000(1) is not totally different from the cause of action in theDistrict Court Case No.20533/L. It is to be observed that the facts are thesame in both cases. It is not in dispute that the 1st defendant bankpassed a resolution under the provisions of Act No.4 of 1990 to sell themortgaged property belonging to the plaintiff by public auction on the basisthat the 2nd defendant had defaulted the repayment of a sum of Rs.45million and interest thereon borrowed from the bank.
The plaintiff and the 2nd defendant filed the action HC (Civil) No. 199/2000 (1) inter alia for a declaration that the said resolution is not lawfuland/or is illegal and for a declaration that the bank is not entitled to sellthe property described in the said resolution which is morefully describedin the schedule to the plaint and also for an interim injunction to restrain
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the defendant bank from selling the said property described in the saidresolution. The Commercial High Court refused to issue an interiminjunction. Thereafter the plaintiff and the 2nd defendant made an applicationfor leave to appeal to the Supreme Court against the said order on theground that the bank is not entitled to sell the property by way of parateexecution where the property has been mortgaged by a person other thanthe actual borrower. The supreme Court refused to grant leave to appealand dismissed the application. The present action bearing No.20533/Lhas been filed on 28.10.2004, in the District Court of Colombo inter alia fora declaration that the said public auction held by the 1 st defendant – bankis null and void and for a declaration that the plaintiff is the owner of thesaid property and also for an interim injunction preventing the 1 st defendant- Bank from ejecting the petitioner and all those holding under him andclaiming title to the property. In these circumstances it shows that thecause of action in both cases, that is in case No. HC(Civil) 199/2000(1)and in case No. D. C. Colombo 20533/L is the same or just the same.
Therefore the plaintiff cannot now re-agitate the same matter by institutinga fresh action and he has no right to have the action re-tried in a differentform.
We find support for the aforesaid view in the English case of Derrick/s. Williams/3) This is a judgment as to the effect of change of law bydecision of a higher Tribunal. The Court has to apply the law as it is at thetime when the decision is given, and the fact that the law is subsequentlyaltered by a decision of a higher Court or by the legislature gives no rightto have an action retried. It would, of course be a different matter if thedecision of the higher Court were given while an appeal in the case waspending (editor’s note). In the course of his judgment Sir Wilfred Greene,MR. said, (at page 565)
“It was mistake of law, and consisted of the fact that the plaintiffwas under the belief that the law as laid down by this Court in RoseVs. Ford(4) was correctly laid down. In that he was wrong and he isasking the Court to say that the law has been enunciated by thehighest tribunal, he is entitled to make another attempt. That is athing which it seems to me, cannot be permitted on principle. Itappears to me to be completely indefensible it would be anintolerable hardship on successful litigants if, in circumstances suchas these, their opponents were entitled to harass them with furtherlitigation because their view of the law had turned out to be wrong,
CA
Jayawardena Vs. Sampath Bank Ltd., and Another
( Winialachadra J.)
347
and, unless I were constrained by binding authority I should bequite unable, on principle, to accept any such proposition.The overruling of the previous decision by the Supreme Court is adeclaration that the supposed ruling in the SC Leave to Appeal ApplicationNo.14/2001, HC(Civil) 199/2000(1) never was the law. The overruling applieseven to pending cases with retrospective effect. However in our view itdoes not apply to a case which has been concluded leaving only theexecution of the decree. As regards the case No. 6468/Spl, it has howcome to the stage of execution of decree for delivery of immovable property.Consequently, the aforesaid decision of the Supreme Court overruling itsearlier decision in the S. C. Leave to. Appeal ApplicationNo. 14/2001 (S.C.) Minutes dated 23.07.2001 does not apply to the presentapplication pending in this Court.
It is to be observed that the 1 st defendant bank commenced proceedingsby filling action No.6468/SPL in the District Court of Colombo in terms ofSection 16(1) of the Act No.04 of 1990, for the delivery of vacant possessionof the property purchased by the bank. Section 16(1) of Act No.04 of 1990reads as follows :
“The purchaser of any immovable property sold in pursuanceof the preceding provisions of this Act shall, upon application tothe District Court of Colombo orand upon production of the
certificate of sale issued in respect of that property under section15, be entitled to obtain a order for delivery of possession of thatproperty.”
It appears to me that the plaintiff has instituted the District Court actionbearing No.20533/L with the sole intention of preventing the execution ofthe decree in Case No.6468/SPL for the delivery of possession of theproperty purchased by the 1 st defendant – bank.
As regards the above mentioned second ground of objection, we areinclined to agree with the submissions made by the learned counsel forthe 1 st defendant – bank that the order made in the District Court case No.6468/SPL, the dismissal of the Leave to Appeal Application No. 416/2003and the Revision Application No. 1917/2003 by the Court of Appeal operatesas res-judicata and the plaintiff is not entitled to re-agitate the same matterin the District Court action D. C. 20533/L.
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The 1st defendant – bank, at the auction purchased the said propertyfor Rs.1,000 as there were no bidders. When the plaintiff owes the bank asum of Rs. 45 Million and interest thereon from 1998, a question ariseswhether the principle of laesio enormis will apply. Moreover section 15(1)of the Act No. 4 of 1990 prevents or does not allow the challenge of theauction. Section 15(1) reads thus :
“If the mortgaged property is sold, the Bank shall issue acertificate of sale and the there upon all the right, title and interestsof the Borrower, to, and in, the property shall vest in thepurchaser; and thereafter, it shall not be competent for any personclaiming through or under any disposition whatsoever of right,title or interest of the borrower to, and in the property made orregistered subsequent to the date of mortgage of the property tothe Bank, in any Court to move to invalidate the sale for anycause whatsoever, or to maintain any right title or interest to orin the property as against the purchaser.”
In terms of Section 19 of the Act No. 4 of 1990, it the Bank purchasesthe property, the Bank is then obliged to re-sell the property within areasonable period in order to recover the full amount due to the Bank. Itappears that when there are no bidders, the Bank can purchase theproperty. In the circumstances, I agree with the submissions made by thelearned counsel for the 1st defendant -Bank that the price paid by theBank to purchase the property is immaterial as the Bank is obliged to re-sell the property in order recover the full amount due to the Bank. It seemsto me that the Bank has no power to keep the property for itself. Moreover,no Bank can sell a property at Market price when people are occupyingthe property. In the instant case the plaintiff and persons holding underhim are in occupation of the property which is the subject matter of thisaction. In these circumstances it seems to me that the doctrine of laesioenormis will not apply to this matter.
For these reasons we are of the view that this is not a fit case to grantleave to appeal. Accordingly, the application for leave to appeal is dismissedwith cost fixed at Rs. 10,000.
Judge of the Court of AppealSomawansa, J. (P/CA) – I agree,
Appeal dismissed.