In this groundbreaking judgment, the Supreme Court overruled the majority ruling in Ramachandran v Hatton National Bank ([2006] 1 Sri LR 393) which had held that a bank cannot sell by public auction, the property mortgaged by a person unless he is also the borrower of the loan.
The Supreme Court noted that when enacting the Recovery of Loans by Banks (Special Provisions) Act, ‘Parliament fervently desired to assist the banking sector by facilitating speedy recovery of loans, and it did not intend to limit the expedited process only to cases where the debtor had mortgaged the property’.
The ruling in Sunpac Engineers is significant because banks in Sri Lanka may now lend monies on the security of property belonging to persons other than the borrower with the confidence that in the event of a default, the bank will be entitled to exercise its rights of parate execution without recourse to court. This would facilitate credit growth in the country as intended by the legislature when it enacted the Recovery of Loans by Banks (Special Provisions) Act. The Court extended the same conclusion to the laws establishing the Bank of Ceylon and the People’s Bank.
Manjula Ellepola
Partner
Nirmala Peiris
Partner