News
SC ruling in a dispute over shares being pledged against a loan
View(s):A 3-judge bench of the Supreme Court has overturned a ruling by the Commercial High Court of Colombo where a litigant had established that she had not pledged shares (from her stake in Hunter & Company) as security for a loan taken by a company in which she was a shareholder.
The case arises from the sale of shares in 2005.
The earlier court ruling by the judge decreed that she had not pledged or had a lien (which means property held as a security for a loan), and thus directed that the proceeds of the sale of shares amounting to Rs. 5,584,200 and further damages of Rs. 10 million be given to the litigant Mrs. N.S. Cader (nee Ratnagopal) in an action against Asia Securities and Commercial Bank.
In the appeal in the Supreme Court (SC) against that ruling, SC Justice A.H.M.D. Nawaz (who wrote the judgment with the other two judges – S. Thurairaja and Achala Wengappuli agreeing) allowed the appeal against the High Court ruling, set aside that ruling and directed that the sale proceeds be remitted to the Commercial Bank towards settlement of the outstanding loan of Exporters & Consumers Consortium (Pvt) Ltd.
The original issue pertained to a dispute between Mrs. Cader and Asia Securities and Commercial Bank where Mrs. Cader contested that she had not pledged her shares in the company (in which she was a shareholder) in lieu of a loan taken by the company from Commercial Bank. The aggrieved party (Commercial Bank) contested the High Court ruling saying she had pledged the shares and its sales should be remitted to the bank as repayment of the company loan.
The Supreme Court ruled that a valid lien had been created as a security for the loan; the absence of an original written pledge document does not in law or in fact, defeat the existence of the pledge which is amply established by the totality of the circumstantial evidence; neither the Prevention of Frauds Ordinance nor the Mortgage Act imposes a requirement for written formality; and the award of Rs.10 million cannot be sustained.
On June 17, 1994, – a year after the Hunter’s shares were purchased for Ms. Cader by her father, Asia Securities wrote to Commercial Bank acknowledging the lien created over the said shares. “We hereby irrevocably undertake to hold these shares to the order of the City Office Branch of the Commercial Bank of Ceylon Ltd. In the event of these shares being sold, we irrevocably undertake to remit the sale proceeds direct to the Manager, Commercial Bank City Office….,” the letter said.
For 10 years the Hunters
shares were not traded. When the company in 2005 defaulted on the loan, the shares were sold and the funds remitted to the bank as per instructions.
Ms. Shaheeda Barrie appeared for Asia Securities, S.A. Parathalingam PC with Jaliya Bodinagoda appeared for Commercial Bank while Nihal Fernando PC appeared for Ms. Cader.
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