Nimalaratne Perera v. People’s Bank

This legal document is a judgment from the Court of Appeal in the case of

Nimalaratne Perera v. People’s Bank, decided on September 3, 2004. The case concerns an application for leave to appeal an order by the District Court of Anuradhapura that refused to grant an injunction. The petitioner, Nimalaratne Perera, sought to stop the People’s Bank from auctioning his properties to recover a debt.

Case Background

Nimalaratne Perera, a businessman, had two current accounts with the People’s Bank in Anuradhapura. He had taken out several loans totaling Rs. 28,50,000. The Board of Directors of the People’s Bank, using the powers granted by the

People’s Bank Act No. 29 of 1961 (as amended), passed two resolutions to sell the mortgaged properties at a public auction to recover the money owed. The resolutions stated that the amounts due were Rs. 6,84,130 and Rs. 20,00,000, along with interest rates of 28% and 29% respectively, up to the date of payment.

In his plaint, the petitioner claimed he had already paid over two million rupees in interest. While he admitted that a portion of the loan remained unpaid, he did not specify the exact amount. His main argument was that under

Section 2 of the Money Lending Ordinance, the bank could not recover an amount of interest that exceeded the principal sum lent. He asked the District Court for a declaration to this effect and an interim injunction to stop the auction.

The District Court initially issued an enjoining order to temporarily halt the auction. However, after the bank filed its objections, the District Judge refused the petitioner’s request for an interim injunction on April 4, 2001. The petitioner then filed for leave to appeal this decision in the Court of Appeal, citing three grounds for his appeal.

Petitioner’s Arguments for Appeal

The petitioner’s appeal was based on three main points:

1. The District Judge failed to understand the legal principles for issuing injunctions.
2. The Judge failed to recognize that the payments made by the petitioner already exceeded twice the amount of the principal loan.
3. The Judge failed to appreciate the implications of Section 5 of the Introduction of Law of England Ordinance.

The Court of Appeal, in its judgment delivered by Justice Gamini Amaratunga, first addressed the claim regarding the legal principles of injunctions. The court found that the District Judge had correctly understood and applied the relevant legal principles to the case, and therefore, this submission had no merit.

The court then focused on the second and third grounds, which were interconnected, as the validity of the second point depended on the interpretation of Section 5 of the Introduction of Law of England Ordinance.

The Court’s Analysis

The court noted that in the District Court, the petitioner had relied on

Section 2 of the Money Lending Ordinance, but in the Court of Appeal, he had “jettisoned” that argument and instead relied on Section 5 of the Introduction of Law of England Ordinance. The court noted that the District Judge had already correctly demonstrated that Section 2 of the Money Lending Ordinance was not relevant to the petitioner’s case.

The core of the legal analysis revolved around

Section 5 of the Introduction of Law of England Ordinance, which states that the amount of interest or arrears of interest recoverable “shall in no case exceed the principal sum”. The court referenced the 1881 case of

Sinnathamby Cumaravely and another vs. Muttutamby Sittarapuvalpulle, where it was established that while the recoverable arrears of interest cannot exceed the principal sum at the time of an action, there is no limit to the total amount of interest a bank can receive if it is paid from time to time.

Crucially, the judgment highlighted that by

Ordinance No. 22 of 1866, English law related to banks and banking was introduced into Ceylon (now Sri Lanka). The term “banking” was defined as including every transaction within a banker’s legitimate business, such as maintaining current accounts and granting loans. Since the petitioner’s accounts with the bank were current accounts, the applicable law was English law.

The judgment then cited the case of

National Bank of India vs. Stevenson, which specifically addressed whether a bank in Sri Lanka could charge compound interest. The argument that Section 5 of the Introduction of Law of England Ordinance limited the recoverable interest was “specifically rejected” in that case. The court concluded that the limitation placed by Section 5 has

no application to interest that is recoverable from a banking transaction.

Furthermore, the court held that when the Board of Directors of the People’s Bank passes a resolution under

Section 29D of the People’s Bank Act, they are not bound by the limitation in Section 5 of the Introduction of Law of England Ordinance. The Board has the right to pass a resolution to recover the entire unpaid capital sum along with the agreed-upon interest.

Conclusion

Based on this analysis, the court concluded that

Section 5 of the Introduction of Law of England Ordinance was not applicable to the petitioner’s case. Given this finding, the court did not need to address the petitioner’s second submission regarding the amount of payments made.

Ultimately, the court found no merit in the application for leave to appeal. The application was dismissed, and the petitioner was ordered to pay Rs. 10,000 in costs to the respondent. The judgment affirmed the legality of the bank’s actions in seeking to recover the full amount of the debt, including all agreed-upon interest, regardless of whether it exceeded the principal sum.