Finance Industry upbeat over SC decision

The financial industry has generally welcomed the Supreme Court decision, emphasizing the need for expeditious debt recovery to enhance lending capabilities and stimulate economic growth.

In a ground-breaking decision, the Supreme Court, in SC Appeal No: SC/APPEAL/11/2021, has redefined the scope of the recovery of loans by banks (Special Provisions) Act, No. 4 of 1990, enabling banks to auction properties mortgaged by third parties without the need for court intervention (parate execution).

The judgment, released in November 2023, marks a significant shift in the interpretation of the law and has far-reaching implications for the debt recovery process in Sri Lanka. Experts at a recent NDB Investor webinar anticipate that this ruling will have profound implications for the banking sector and the broader financial landscape.

The decision streamlines the debt recovery process, providing banks with more efficient means to handle non-performing loans. However, concerns have been raised about potential abuse and the need for safeguards to prevent unjust property seizures. As this landmark ruling reshapes the interpretation of debt recovery laws, it sets a precedent that will likely influence future legal challenges and debates within the financial and legal communities.

The case centred around a legal challenge to the provisions of the Recovery of Loans by Banks Act, specifically addressing the bank’s authority to auction properties that were mortgaged by individuals not directly responsible for the loan. The appellant argued that such actions amounted to a violation of constitutional principles and procedural fairness.

In its ruling, the Supreme Court revisited the 1990 determination, which asserted that the Act did not exclude the right of recourse to the courts and that conferring parate execution powers on banks did not dilute judicial authority. The court emphasized the economic rationale behind the legislation, aiming to expedite debt recovery and stimulate national development.

The key argument presented in SC Appeal No: SC/APPEAL/11/2021 was the potential infringement on the rights of third-party mortgagors. The appellant contended that allowing banks to auction properties without court oversight could lead to abuses of power and unjust property seizures. TP

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