Financial Times

Parate law judgment impacts on 20-30 other cases
By Iromi Perera
A recent decision by the Supreme Court that banks cannot acquire property under the Parate law where the owner of the property is a third party, would impact on 20 to 30 cases that are before the courts on the same issue.

A top lawyer involved in litigation issues said these cases were being held back without proceeding in anticipation of the court judgement. The ruling has triggered mixed reactions from the business community and the banking sector.

"As we have to go by the decision of the court, it will be necessary for the banks to review the decision very seriously," said Rienzie. T. Wijetilleke, HNB chairman. He said that in view of the long delay mainly experienced in normal mortgage action, banks will in future insist on the owners of such properties transferring the name of the land in the name of the borrower.

"We also have a major problem in hand with regard to a large number of properties falling in the third party category which have already been acquired and possessed by the banks awaiting disposal," he further stated. Wijetilleke said that they would not be able to go ahead with the disposal of these properties as the banks' rights can now be challenged.

Overall, Wijetilleke says that the banks will be faced with a situation where credit growth will be directly affected as they are now compelled to exercise more caution. "Also since our capital resources will be further tied down in non-performing assets, the banks will probably be taking up this issue with the Central Bank shortly," he added.

Nawaz Rajabdeen, President of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) hailed the court decision saying this would open the eyes of the banks that have been taking undue advantage from people using the Parate law. He said that banks should practice social responsibility as most of the time; it is the "poor man" and the small and medium entrepreneurs who get affected by this the most. He added that if the government pays back some of the money owed to the banks by government institutions, then this could facilitate a lot of the SMEs who are badly affected by the Parate law. The country is dependent on SME sector so therefore there is a responsibility towards them, he said.

A study on Parate execution in Sri Lanka by the Institute of Policy Studies of Sri Lanka for the FCCISL in 2001 showed that daily, three organizations were closed by the commercial banks using the powers of Parate.

"The steady increase in the number of Parate notices in the press and government gazette has led to the business community in the country to fear that these 'draconian' laws are being misused and that the entrepreneurship spirit in the country is steadily fading," the study said.

It further addressed the adverse effect that it has, especially on foreign investors, as parate notices dominate several pages in newspapers, sending out a negative signal about the country's economy.

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