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NATIONAL DEVELOPMENT BANKCOURT OF APPEALWIMALACHANDRA , J.
CALA 7/2006FEBRUARY 22, 2007
Debt Recovery Act No. 2 of 1990 – Sections 6 (2), 6 (A) – Order nisi entered
Party absent – Order nisi made absolute – By consent order absolutevacated – Time granted to show cause why order nisi should not be madeabsolute? Should the matter be fixed for inquiry under Section 7? CivilProcedure Code – Sections 384, 385, 386, 387, 390 and 391, – Section 703
Procedure to be followed.
In an action filed under the Debt Recovery Law (DR Law) order nisi wasentered against the three defendants. The 2nd defendant did not appear andthe order nisi was made absolute. This order was set aside by consent as theorder nisi was not served on the 2nd defendant. The Court gave the defendant14 days to show cause as to why the order nisi should not be made absolute.
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The 2nd defendant sought leave to appeal, from the said order contending thatsince the Court had vacated the order absolute, it should be fixed for inquiryunder Section 7.
When a defendant purges default the only consequence is vacating theorder absolute. This does not give the defendant an added advantage ofover coming the request of showing a defence.
Purging of default does not allow the defect to by pass the request ofdisclosing a defence.
Section 7 is based upon the defendant appearing and obtaining leave.The 2nd defendant has to appear and obtain leave. If leave is notobtained, no further steps can be taken in terms of Section 7. It ismandatory for the 2nd defendant to obtain leave.
APPEAL from leave to appeal from an order of the District Court of Kandy.
Riza Muzni for 2nd defendant-petitioner.
Romesh de Silva, PC, with Geethaka Gunawardane for plaintiff-respondent-respondent.
November 13, 2007ERIC BASNAYAKE, J.
The 2nd defendant-petitioner-petitioner (2nd defendant) filedthis leave to appeal application to have the order of the learnedAdditional District Judge, Kandy, dated 30.12.2005, set aside.
The plaintiff-respondent-respondent (plaintiff) filed this actionunder the provisions of the Debt Recovery Act No. 2 of 1990 asamended (the Act) against three defendants including the 2nddefendant, to recover a sum of Rs. 1,032,472.03. The order nisiwas entered and was ordered to be served on the defendants. Afterthe service the 1st and the 3rd defendants appeared in court. The2nd defendant did not appear. Hence the order nisi was madeabsolute against the 2nd defendant.
The 2nd defendant appeared on a later date and urged that the2nd defendant was not served with order nisi and thereforerequested that the order absolute be vacated. The learned Counselappearing for the plaintiff consented to vacating the order absolute.Order absolute was thereby vacated. Thereafter the Court gave the2nd defendant 14 days time to show cause as to why the order nisi
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should not be made absolute. The 2nd defendant withoutcomplying with the said order filed this leave to appeal application.
Submission of the learned Counsel for the 2nd defendantThe learned Counsel appearing for the 2nd defendant submittedthat since the Court has vacated the order absolute it should befixed for inquiry under Section 7 of the Act No. 2 of 1990 asamended. The learned Counsel rests his submission on Section6A(2) which is as follows:
6A(2) :Where the ground on which an application is
made under subsection (1) is duly established to the
satisfaction the court may set aside the decree
absolute upon such terms and conditions as the courtshall consider it just and right to impose upon theapplicant and upon the decree absolute being set aside,the court shall proceed with the hearing anddetermination of the matter in accordance with theprovisions of Section 7 of this Act.
The learned Counsel appearing for the 2nd defendant submittedthat since the 2nd defendant's application to purge the default hasbeen allowed, Section 7 of the Act applies. In terms of Section 7 ofthe Act, the Court must treat the 2nd defendant as having obtainedleave to appear and now proceed in terms of sections 384, 385,386, 387, 390 and 391 of the CPC. He further submitted that theCourt has set aside the order absolute in terms of Section 6A(2).Therefore, court is required to proceed with the hearing anddetermination thereafter in accordance with the provisions ofSection 7. He submitted that Section 6A(2) does not leave room forthe defendant to go back to Section 6 and obtain leave to appear
and defends, but to move forward by having a hearing anddetermination in terms of Section 7. What is required is a hearingin terms of Sections 384, 385, 386, 387, 390 and 391 of the CPC.He submitted that there is no provision for the defendant who hasalready faced an inquiry with regard to non-service of the order nisito go through a second inquiry to obtain leave to appear anddefend. Therefore, he submitted that the order dated 30.12.2005 iserroneous.
CANational Development Bank (Eric Basnavake. J)
The question to be answered in this case is with regard to theprocedure that has to be followed, when a decree absolute is setaside pursuant to an application made by a defendant to purge thedefault.
Submission of the learned President's Counsel appearing forthe plaintiff
The learned President's Counsel appearing for the plaintiffsubmitted that the basis of the Debt Recovery (Special Provisions)Act is that no person is entitled as of right to answer to the decreenisi. All defendants have to first obtain leave of court (Section 6).Normally a defendant has a right to be heard or has a right to fileanswer. A defendant can file answer irrespective of whether he hasgood or bad reasons or is without any defence. However, in certainspecific instances, the right to file answer has been taken away bythe legislature. One such example is summary procedure on liquidclaims under Section 703 of the Civil Procedure Code.
It was further submitted that the Legislature has enacted theDebt Recovery (Special Provisions) Act to ensure speedy recoveryof monies lent by banks and lending institutions. Thus theLegislature has specially legislated that defendants have no right toanswer unless they first obtain leave to appear and show cause.The procedure is laid down in Section 6 of the Act in terms of whichleave has to be obtained. If the decree nisi is served and thedefendant does not appear, the decree nisi has to be madeabsolute. However if a party complains that the decree nisi has notbeen served (to the satisfaction of Court) the decree absolute hasto be set aside (Sections 6A(1) and 6A(2)).
Some uncertainty has been created by the wording in section6A(2) with the words “the court shall proceed with the hearing anddetermination of the matter in accordance with the provisions ofSection 7 of this Act."
Section 7 is as follows:
If the defendant appears and leave to appear andshow cause is given the provisions of Sections 384,
385, 386, 387, 388, 390 and 391 of the Civil ProcedureCode (Chapter 101) shall, mutatis mutandis, apply tothe trial of the action (emphasis added).
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The learned President's Counsel submitted that according to theproper interpretation of Section 7, the Court must now look in to thequestion of whether the 2nd defendant had obtained leave in termsof Section 7. The 2nd defendant has filed his objections and nowthe Court has to hold an inquiry as to whether the 2nd defendantshould be allowed to appear and show cause. It is only in the eventsuch leave is granted that the 2nd defendant should be entitled toa hearing under Sections 384 of the CPC.
The learned President's Counsel submitted that although the2nd defendant appeared and purged the default as provided for bySection 6A(1) of the Act, the 2nd defendant should obtain leave toappear in order to defend the action. The learned President'sCounsel submitted that vacating the order absolute for the reasonthat the 2nd defendant was not served with order nisi does not givehim the leave and license to forego Section 6(2) of the Act. Section6(2) of the Act provides the requirements under which leave toappear and show cause could be considered. Leave is required interms of the provisions of Section 6(1) which states thus: "In anaction instituted under this Act the defendant shall not appear orshow cause against the decree nisi unless he obtains leave fromcourt to appear and show cause."
Section 6(2) is as follows:
6(2): The court shall upon the filing by the defendant of an
application for leave to appear and show causeshall
deal specifically with the plaintiff's claim and state clearlyand concisely what the defence to the claim is and what
facts are relied upon to support it, and after giving thedefendant an opportunity of being heard, grant leave toappear and show cause against the decree nisi either.
Upon the defendant paying in to court the summentioned in the decree nisi or
upon the defendant furnishing such security as tothe court may appear reasonable and sufficient forsatisfying the sum mentioned in the decree nisi in theevent of it being made absolute or
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upon the court being satisfied on the contents of theaffidavit filed, that they disclose a defence which is primafacie sustainable and on such terms as to security,framing and recording of issues, or otherwise the courtthinks fit*
Where the defendant …. having appeared, his application toshow cause is refused, the court shall make the decree nisiabsolute (6(3)).
The learned President's Counsel for the plaintiff submitted thatSection 7 is based upon the defendant appearing and obtainingleave. In this case the 2nd defendant has to appear and obtainleave. If leave is not obtained, no further steps can be taken interms of Section 7. He submitted that it is mandatory for the 2nddefendant to obtain leave.
The learned President's Counsel submitted that theinterpretation given by the Counsel for the 2nd defendant wouldonly lead to absurdity. The reason is that a defendant who makesan application to purge a default and succeeds would be in a betterposition than that of a defendant who responds to the decree nisi.The learned President's Counsel submitted that this would nullifythe very basis for which the Debt Recovery (Special Provision) Actwas created.
Section 6(1) states that the defendant shall not appear or showcause … Unless he obtains leave to appear. To obtain leave thedefendant shall file an application. Together with this application thedefendant should file an affidavit. This application shall dealspecifically with the plaintiff's claim and state clearly and conciselywhat the defence to the claim is and what facts are relied upon tosupport it. Thereafter the defendant shall be heard. The court wouldgrant leave only in three situations as prescribed by Section 6(2). Itis only if leave to appear and show cause is given (Section 7) thatthe provisions of Sections 384, 385, 386, 387, 390 and 391 of theCPC shall apply.
Therefore in all the circumstances, it is mandatory upon thedefendant to obtain leave. When a defendant purges default, theonly consequence is vacating the order absolute. This does notgive the defendant an added advantage of overcoming the
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requirement of showing a defence. Purging the default does notallow the defendant to by pass the requirement of disclosing asustainable defence. In this case the 2nd defendant never filedpapers as required by law to satisfy court that he has a prima faciesustainable defence. Hence the 2nd defendant has no right toappear without satisfying the requirements specified in Section 6(2)of the Act. I am of the view that this application is without merit. Thelearned Judge is directed to make the decree nisi absolute. Leaverefused with costs fixed at Rs. 15,000/-.
WIMALACHANDRA, J. – I agree.
PERERA v. NATIONAL DEVELOPMENT BANK