No wiggle room in parate cases with ‘certificate of sale’ | Daily News

No wiggle room in parate cases with ‘certificate of sale’

A petitioner made a writ application for quashing a bank resolution for parate execution to auction mortgaged property, upon default of loan payment. (Satchithanandasivam People’s Bank - SLR - 63, Vol 2 of 2004 [2004] LKCA 37; (2004) 2 Sri LR 63 (February 25, 2004)).

However, the petitioner being aggrieved by this decision by the bank applied for said writ on the basis that the mortgage of the property was for future loans, and not the current one.

The Court of Appeal narrated the circumstances of the case as follows:

“Admittedly the first respondent-Bank granted loan facilities to the petitioners purportedly to expand the business of the latter in purchase, storing and selling of paddy. Also admittedly the said loans were secured by the stocks of paddy held by the petitioners up to the time of rescheduling of the loan at which time security by way of a mortgage specifically by mortgage bonds, bearing Nos. 197 and 198 dated 21.5.2002 had been tendered by the petitioners and accepted by the first respondent-Bank.”

Note that the loan was rescheduled, mortgaging property in addition to the paddy in stock which already was pledged as collateral.

The fact was that the property mortgaged was collateral for loans and future loans, but this reality had been ignored by the petitioner in making the writ application. Why was the application made at all? Perhaps it was in the off chance that the case could be made that the parsing of words in the mortgage bond wasn’t clear, and the current loan doesn’t qualify to be offset by the mortgaged property. Whatever was the hope of the petitioner in this regard, the Court of Appeal wasn’t buying it.

The judgement observes tersely:

“Clause (C) of the aforesaid mortgage bonds by which the petitioners are legally bound to the first respondent-Bank unequivocally refers to all loan facilities past and future as stated above thereby rendering invalid the argument on behalf of the petitioners that the first respondent-Bank acted ultra vires to the powers of the Bank.”

Parate execution is a special class of legislation where the bank can without intervention of court auction mortgaged property. The law doesn’t offer a right of appeal.

The Court of Appeal judgement makes this abundantly clear.

“In the above circumstances the Petitioner Bank is entitled to execute the writ notwithstanding the notice of appeal. Act No. 4 of 1990 has not provided for a right of appeal against an order made by the District Court in terms of Section 16 of the said Act. Martin v Wijewardena 1982 (2) SLR 409 at 420 Jameel J. held “an appeal is a statutory right and must be expressly created and granted by statute. It cannot be implied. The law is clear and I would say it is trite law on the point as in Section 16(1) of the said Act. The method followed by the Petitioner Bank to regain possession of the land in dispute cannot be faulted in any respect.”

Once the land is sold either by auction or otherwise the certificate of sale is conclusive proof that the land was sold and therefore possession is required. If the terms of the Act are not contravened in the sale the sales certificate cannot be challenged in any manner whatsoever in appeal as parate execution was all about the banks expeditiously disposing of land mortgaged as collateral for loans.

This position was basically reaffirmed in the Supreme Court case of Hatton National Bank PLC vs. Hikkaduwa Gamage Thejasiri Gunethilake. (S.C. Appeal No. 189/2012.)

“Section 16(1) of the Act no doubt provides, upon production of the certificate of sale issued in respect of that property under Section 15, entitle the Petitioner Bank to obtain an order for delivery of possession of that property. Wording in Section 16(1) is almost similar to Section 72(7) of the Finance Act No. 16 of 1973. Both statutes require the production of the vesting order or the certificate of sale as the case may be. Both statutes in this way provides for delivery of possession of property and so enacted by the legislature to expedite such delivery of possession. Certificate of sale is conclusive proof in respect of that property and as regards its sale being duly complied with in terms of the Act. As such the certificate of sale cannot be challenged, if and when it is issued in terms of the said Act.”

If there is a certificate of sale possession of land can obtained by the bank. In the aforementioned Supreme Court case the judgement unequivocally states that there is no room for interpretation of the legislation with regard to the certificate of sale. It is stated that the words of the statute cannot be given any extended meaning and therefore when there is a certificate of sale that is adequate reason to gain possession of the land, and this certificate of sale cannot be challenged.

Supreme Court cites a judgement in this regard that was made by former Chief Justice G.P.S. De Silva which held that the normal recourse to appeal from a District Court judgement does not apply to this special jurisdiction that has been conferred on the District Court with regard to parate execution.

The aforementioned judgement notes with approval, the following submission:

“Learned President’s Counsel placed much emphasis inter alia in his submission to the conclusive nature of the certificate of sale as contemplated by Section 15 of the said Act. He also submitted to court that Section 15 of the said Act would not permit the borrower or any other person claiming through the borrower to invalidate the sale for any cause whatsoever or maintain any right or interest to the property as against the purchaser.”


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