By Indunil Kahatapitiya
The Court of Appeal on Friday (19) dismissed a writ petition filed by Daya Group Limited and Daya Apparel Export (Pvt) Ltd challenging a decision by People’s Bank to sell their mortgaged properties through public auction.
The petition was heard before a bench comprising Court of Appeal Judges Ratnapriya Gurusinghe and Dr. Sumudu Premachandra. The court ruled that People’s Bank has the legal authority to auction the mortgaged properties in order to recover an outstanding debt exceeding US$1.42 million.
The court also ordered the petitioning companies to pay legal costs amounting to Rs. 1 million.
Background and Application of Parate Powers
The Board of Directors of People’s Bank had decided to auction the properties under its Parate powers after the companies failed to repay loans obtained from the bank.
Parate powers allow licensed banks to recover outstanding debts by selling mortgaged properties without lengthy court proceedings. The provisions are contained in the State Banks Act and are intended to safeguard public funds and protect depositors’ money in state-owned banks.
People’s Bank issued the relevant Parate notice on March 26, 2021, and subsequently provided the companies with several opportunities to settle or restructure their debts. The bank also postponed a number of scheduled auctions to facilitate repayment. However, the companies failed to settle the outstanding liabilities.
Court Rejects Companies’ Arguments
In their petition, the companies argued that their businesses had suffered severe financial losses as a result of the 2019 Easter Sunday terrorist attacks and the COVID-19 pandemic, making it impossible for them to service the loan.
They also alleged that the bank had unlawfully exercised its Parate powers and had inflated the outstanding debt through the application of exchange-rate adjustments.
The Court of Appeal rejected all of these arguments.
The bench observed that:
- The bank had granted the companies multiple opportunities to repay the debt;
- Several scheduled auctions had been postponed to accommodate repayment efforts; and
- The petition had been filed more than a year after the Parate notice was issued in March 2021, resulting in an unreasonable and unexplained delay.
Accordingly, the court held that People’s Bank was fully entitled to recover the debt through the exercise of its Parate powers and that there was no legal basis to prevent the auction process from proceeding.
Attorney-at-Law Priyantha Alagiyawatte appeared on behalf of the petitioning companies, while Attorney-at-Law Jaliya Bodhinagoda represented People’s Bank.
Significant Legal Precedent
Legal observers say the ruling reinforces the effectiveness of Parate powers within Sri Lanka’s banking sector and strengthens the ability of banks to recover long-outstanding debts.
The judgment makes clear that economic hardships, including those arising from the Easter Sunday attacks and the COVID-19 pandemic, cannot indefinitely prevent banks from exercising their statutory rights where borrowers have failed to meet their repayment obligations.
The ruling also underscores the importance of seeking timely legal remedies when challenging bank actions. As such, it is expected to serve as an important precedent for the financial sector and the recovery of non-performing loans in Sri Lanka.
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