Actions filed under the Debt Recovery Special Provisions

Actions filed under the Debt Recovery (Special Provisions) Act No. 2 of 1990 as amended by Act No. 9 of 1994 Senaka De Saram LL. B, LL. M, ACMA(UK) Attorney-at-Law

Why is it essential that you be aware of this area of the law as a lawyer • In Sri Lanka today, banking and finance companies are seeking faster methods of recovering monies lent to their customers which are in default. • The traditional methods under the civil procedure code are time consuming given its inherent procedural steps. • The inability of the said finance houses to institute proceedings in the Courts of Colombo for monies lent outside Colombo through their branches.

Who can institute action in terms of the Debt Recovery (Special Provisions) Act • A licensed Commercial Bank within the meaning of the Banking Act, No. 30 of 1988; • The State Mortgage and Investment Bank established by the State Mortgage and Investment Bank Act, No. 13 of 1975 ; • The National Development Rank established by the National Development Bank of Sri Lanka Act, No. 2 of 1979 ; • The National Savings Bark established by the National Savings Bank Act, No. 30 of 1971; • The Development Finance Corporation of Ceylon established by the Development Finance Corporation of Ceylon Act (Chapter 165) • A company registered under the Finance Companies Act, No. 78 of 1988, to carry on finance business

Which Courts have jurisdiction to hear and determine debt recovery actions In terms of section 2 of the Act, Jurisdiction for filing DR actions are vested with the following District Courts irrespective of the value of the case. Where, • a party defendant resides, • the cause of action arises or, • the contract sought to be enforced was made.

What prerequisites are required to file a DR action • The sum of money should be ascertainable at the time of the institution of the action. (Section 30 of the Act) • The facility should be in default. (Section 30 of the Act) • The money sued upon should be lent by a lending institution. (Section 30 of the Act) • It should be a transaction in the course of banking, lending, financial or other allied business activity of that institution. (Section 30 of the Act) • The transaction should be in written form. (Section 30 of the Act) • The principal amount lent requires to be more than Rs. 150, 000/- (Section 2(2) of the Act) • The certificate of non settlement in terms of the Mediations Board act for debt below 500, 000/- (Amendment to the Mediation Board Act by Act No 9 of 2016) • Not include any penalty for the default of the facility (Section 22 of the Act)

How do you initiate action • Action is instituted by way of a plaint in the form specified in the Civil Procedure Code. (Section 3 of the Act)basl english debtrecovery. doc • An affidavit by a person of manager grade or above stating that the sum claimed is lawfully due to the institution requires to be annexed to the plaint. (Section 4(1) and 30 of the Act) • Documents sued upon should be annexed to the plaint. (Section 4(1) of the Act) • A draft decree nisi as set out in the 1 st schedule to the Act requires to be submitted to Court. (Section 4(1) of the Act)

Supporting the application in Court • Unlike regular actions, DR action requires to be supported in the relevant District Court. Depending on the procedure adopted by the District Judge you may need to briefly dictate to the record, the facts of the case and relief sought. Some District Judges however do not insist on the same. • When supporting the application you need to make sure that the person who gave the affidavit is in Court and the original documents sued upon are brought by him to Court. (Section 8 of the Act) • If the District Judge is not happy with the application due to lack of information you may either seek permission to file a further affidavit or amend the plaint and re-support the application.

Order of the District Judge after supporting the application • Upon the District Judge being satisfied with your application he or she will issue a decree nisi against the Defendants. (Section 4(2) of the Act) • The Decree Nisi is generally served by post. (Section 5(1) of the Act). The act also provides for it to be served by fiscal. (Section 5(B) of the Act). As such it may be practical to ask for both methods of service upon support of the application. • In relation to public officers and employees, the act also provides for the decree nisi to be served through the relevant department and employer. (Section 5(2) and 5(3) of the Act)

Decree returnable date On the decree nisi returnable date the following likely consequences will exist a) The decree nisi is served on the Defendants and the Defendants do not appear in Court. b) The decree nisi is served on the Defendants and the Defendants appear in Court. c) Decree nisi is unable to be served on the Defendants.

The decree nisi is served on the Defendants and the Defendants appear in Court. • In the event the Defendants appear in Court, the Defendants cannot appear and show cause against the decree nisi unless the Defendant obtains leave from Court. (Section 6 (1) of the Act) • For this purpose the Defendant requires to file an application in Court. (Section 6 (1) of the Act) • The said application requires to be filed on the decree nisi returnable date. The practice of filing only the proxy is not permitted. (Section 4(3)of the Act)

The decree nisi is served on the Defendants and the Defendants do not appear in Court. In the event the decree nisi is served on the Defendants and the Defendants do not appear in Court, your application to court will be to simply request for the decree nisi to be made absolute. In such instances the District Judge will make such order by making an endorsement stating that the decree nisi is made absolute and signing the same. (Section 6(3) of the Act)

Decree nisi is unable to be served on the Defendants. • A decree nisi in a DR action may not be served on the Defendants for many reasons. In the said circumstances the Plaintiff will have to take steps to serve the decree nisi on the Defendants • In this regard one will have to follow the provisions of the said Act and not what is stipulated in the Civil Procedure Code. • The Act has many provisions in relation to service of decree nisi to the Defendant including substituted service. (Section 5 A (3) of the Act)

The Defendant’s application • The Act requires that you file an application to Court on the decree nisi returnable date. Under no circumstances is this to be constructed to mean an answer or objection (Section 6(2)of the Act) • The Application requires to be supported by an affidavit. (Section 6(2)of the Act) • Requires to deal specifically with the Plaintiff’s claim • Requires to state clearly and concisely the defenses to the Plaintiff case (Section 6(2)of the Act)

Cases which interpreted Section 6(2)of the Act which deals with the defense of the Defendants PEOPLE'S BANK Vs. LANKA QUEEN INT'L PRIVATE LIMITED (1999 SLR Vol. 1 at page 233) At page 233 Thus it is mandatory for the defendant to file an application for leave to appear and show cause, further such application must be supported by an affidavit which should deal specifically with the plaintiff's claim and state clearly and concisely what the defence to the claim is and what facts are relied upon to support it. At page 239 In the absence of an application to show cause in writing, it is possible to say that there is no proper application supported by an affidavit before court.

• SENEVIRATNE AND ANOTHER VS LANKA ORIX LEASING COMPANY LTD (2006 SLR Vol. 1 at page 230) At page 238 "The new subsection clears any doubt that would have prevailed earlier in respect of the procedure a defendant has to follow in applying for leave to appear and show cause. On an examination of the amendment introduced in subsection 6(2) it is abundantly clear that the word "application" which appeared in the original section has been qualified with the following words: "Upon the filing of an application for leave to appear and show cause supported by affidavit". This shows. that – (a) It is mandatory for the defendant to file an application for leave to appear and show cause. (b) such application must be supported by an affidavit which deals specifically with the plaintiff's claim and state clearly and concisely what the defence to the claim is and what facts are relied upon to support it.

• METAL PACKING LTD. AND ANOTHER Vs SAMPATH BANK LTD (2008 SLR Vol. 1 at page 356) At page 360 "The new subsection clears any doubt that would have prevailed earlier in respect of the procedure a defendant has to follow in applying for leave to appear and show cause. On an examination of the amendment introduced in sub-section 6(2) it is abundantly clear that the word "application" which appears in the original section has been qualified with the following words: "Upon the filing of an application for leave to appear and show cause supported by affidavit". This shows that (a) It is mandatory for the defendant to file an application for leave to appear and show cause. (b) Such application must be supported by an affidavit which deals specifically with the plaintiff's claim and states clearly and concisely what the defence to the claim is and what facts are relied upon to support it. .

• BANDARA AND OTHERS VS PEOPLE’S BANK (2012 B. L. R Vol. XIX part II at page 366) Section 6(2) of the Act expressly provides for the Affidavit of the Defendant to deal specifically with the Plaintiff’s claim and his defence thereto and facts are being relied on to support his case thereof. The Defendant has to deal with the Plaintiff’s claim on its merits, it is not competent for the Defendant to merely set out technical objections. It is also incumbent on the Defendant to reveal his defence if he has any.

RAMANAYAKE Vs SAMPATH BANK LTD. AND OTHERS (1993 SLR Vol. 1 at page 145) At page 147 In this case the 3 rd and 4 th defendants-petitioners had been given unconditional leave. The 3 rd defendant in his affidavit has not dealt specifically with the plaintiff's claim and stated his defence and the facts relied on as required by section 6(2)(c). He had denied the correctness of the loan account, but had not specified in which particulars the loan account was incorrect, neither stating the reasons for so alleging nor the facts he was relying on to support his claim that the loan account was incorrect. He had not dealt with the plaintiff's claim on its merits but merely set out objections of a technical nature. If a defendant is granted leave unconditionally on this type of technicality and evasive denial, then the purpose of this Act will be brought to naught.

KIRAN ATAPATTU VS PAN ASIA BANK LIMITED 2005 2 SLR 276 PAGE 283 The section 6(2) of the Debt Recovery (Special Provisions) Act provides for the affidavit of the defendant to deal specifically with the plaintiff's claim on its merits. In the instant case the defendant has relied on technical objections and not revealed his defence, if he has any, to the claim made by the plaintiff. He has taken refuge mostly on the technical objections set out in his affidavit. The defendant has not set up any plausible defence relating to a trialable issue.

Where the Defendants make an application for leave to appear and show cause • In the event the Defendant appears on the decree returnable date and makes an application for leave to appear and show cause the relevant District Judge will be required to make order to grant leave to appear and show cause • Prior to making such order the District Judge will permit the parties to file written submissions. • Order to grant leave to appear and show cause will be based on section 6 of the said act.

Leave to appear and show cause in terms of section 6 (2) of the Act • The District Judge can make an order for leave to appear and show cause on the following grounds (a) upon the defendant paying into court the sum mentioned in the decree nisi; or (b) upon the defendant furnishing such security as to the court may appear reasonably and sufficient for satisfying the sum mentioned in the decree nisi in the event of it being made absolute ; or (c) upon the court being satisfied on the contents of the affidavit filed, that they disclose a defense which is prima facie sustainable and on such terms as to security, framing and recording of issues, or otherwise as the court thinks fit.

The Defendants are not entitled to unconditional leave to appear and defend the action. PEOPLE'S BANK Vs LANKA QUEEN INT'L PRIVATE LIMITED (1999 SLR Vol. 1 at page 233) At page 237 This section does not permit unconditional leave to defend the case as the defendant-respondent has requested from the District Court. The minimum requirement according to subsection (c) is for the furnishing of security.

KIRAN ATAPATTU VS PAN ASIA BANK LIMITED 2005 2 SLR 276 at 283 In the case of People's Bank V. Lanka Queen INT'L Private Ltd(3). it was held that the amended section 6(2) (amended by Act, No. 4 of l 994) does not permit unconditional leave to defend the claim. The minimum requirement according to section 6(2)(c) is the furnishing of security. In the aforesaid case Justice De Silva has made a comprehensive analysis of section 6(2) as amended by Act No. 9 of 1994. De Silva, J. held that the amended section 6(2) does not permit unconditional leave to defend the claim, the minimum requirement according to section 6(2)(c) is for furnishing of security.

METAL PACKING LTD. AND ANOTHER Vs SAMPATH BANK LTD 2008 SLR Vol. 1 at page 356 Page 360 This section does not permit unconditional leave to defend the case as the defendant respondent has requested from the District Court. The minimum requirement according to sub-section (c) is for the furnishing of security.

Procedure after the order of the District Judge for leave to appear and defend • Section 7 of the said act states that where the defendant appears and leave to appeal is granted provisions of section 384, 385, 386, 387, 390 and 391 of the Civil Procedure Code will apply. • This is basically the summary procedure, chapter 24 of the Civil Procedure.

Chapter 24 of the Civil Procedure Code • The Defendant requires to start the case. • Section 384 of the CPC permits the Defendant to file objections to the plaint of the plaintiff The Defendant is entitled to read any affidavits or documents and with leave of Court, lead oral evidence. • Any such documents if they are to be lead requires to be served on the Plaintiff 48 hours prior.

• Section 385 of the CPC thereafter permits the Plaintiff to comment on the Defendant’s case after the Defendant’s evidence. This is not to be construed as cross examination. This can be done by a written submission. • Section 386 also permits the Plaintiff to furnish further evidence and make a final order • If the District Court thinks necessary it may frame issues and concluded the matter through a trial.

Conclusion Today in Sri Lanka regularized lending institutions are looking for fast and more cost effective ways to recover their non performing loans In the recent past these institutions have focused on the debt recovery procedures to recover such monies lent. The said procedure can be adopted in any District Court having jurisdiction. Thus getting familiar and showing competence in this area of the law is essential for any practitioner practising in any geographic jurisdiction.

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