Kumar v Govenor of the Reserve Bank [2012] FJHC 12; Civil Action 5.2010 (20 January 2012)

IN THE HIGH COURT of FIJI AT LABASA

NORTHERN DIVISION

Civil Action No: 05/10

BETWEEN:

AJIT KUMAR of
Buca, Nacekoro, Savusavu, Labourer
APPLICANT

AND

GOVERNOR of THE RESERVE BANK of FIJI
as the Controller of National Asset Management Bank.
1st RESPONDENT

AND

MUNESH PRASAD of Buca, Nacekoro, Savusavu self

employed as the administrator de tort son and in purpure persona.
2nd RESPONDENT

Counsels: Mr. A Sen of Maqbool & Co for the Plaintiff;
Mr. A Ram as agent of Messrs. Jamnadas & Associates for the 1st Defendant
No appearance for the 2nd Defendant.

RULING

Introduction

This is an application by Summons dated 3 February 2010 for leave be given to the Plaintiff to issue proceedings against the 1st Defendant. The application is made under section 42(1) of the Banking Act. Section 42(1) of the Banking Act states:-

Considerations affecting exercise of powers by Controller

42.-(1) In exercising the powers conferred by this part of this Act a controller of a licensed financial Institution shall have regard to-

(a) the need to maintain public confidence in the operation and soundness of the financial system and to minimise detriment to the interests of depositors and creditors of the licensed financial institution;

(b) the need to avoid significant damage to the financial system;

(c) to the extent not inconsistent with the considerations referred to in paragraphs (a) and (b) of this subsection, the need to resolve as quickly as possible the difficulties of that institution;

(d) to the extent not inconsistent with the considerations referred to in paragraphs (a), (b) and (c) of this subsection, preserving the position of creditors and maintaining the ranking of claims of creditors; and

(e) the advice of the Reserve Bank.

It should be noted in the first instance that the Summons is an application to institute proceedings and by virtue of that the Summons should be marked Applicant/Respondent(s), there being no proceedings at hand, yet.

The application was supported by an affidavit sworn by the Applicant in which he outlines the background which gave rise to the need to issue proceedings against the 1st Respondent. The Applicant states that he had entered into an agreement with the 2nd Respondent's father to purchase one half undivided share of a portion of land at Nacekoro, Savusavu. After payment of the consideration the 2nd Respondent's father did not transfer the half portion of land to him. The Applicant thereafter by Court action instituted at the Labasa High Court obtained an Order on the 28 January 1999 for the 2nd Respondent's father to execute all necessary documents to enable the Applicant to be registered as a proprietor of one half undivided share of the relevant land. Unfortunately the land in question was encumbered by the 2nd Respondent's father to the NBF Asset Management Bank. It is unclear from the information provided by the parties as to when the land was encumbered. Before the order of 28 January 1999 was complied with, the 2nd Respondent's father died.

A second Court action was then instituted by the Applicant against the NBF Asset Management Bank in the year 2001. It appears from my reading of the decision in this Court action that the Applicant was then willing to pay the debt owing to the Bank so that he could have a secure title. On the 28 June 2001 His Lordship Justice Pathik then made the following orders:-

(a). ordered that NBF Asset Management Bank furnish the Plaintiff within 14 days with details of the amount owed under the mortgage by the mortgagor;

(b). NBF respond to the Plaintiff within 14 days whether it is prepared to allow the Plaintiff to settle the mortgage debt of the 1st Defendant and in consideration whether NBF is prepared to assign the mortgage to the Plaintiff upon payment of the amount owed;

(c). NBF to indicate whether the Certificate of Title No: 21229 is held by it;

(d). Until such time as the above orders (a),(b) and (c) are complied with and until further order of this Court NBF is restrained from exercising its rights particularly its power of sale under the mortgage;

(e). The intended administrator or executor of the estate of the 1st Defendant should with due diligence through his/her solicitor R P Singh proceed to apply for Letters of Administration or Probate of the deceased's estate;

(f). Until such time as the letters of administration or probate is obtained, the Summons in relation to the orders sought against the 1st Defendant is stayed;

(g). Injunction is granted restraining the 3rd Defendant from entering or occupying any portion of certificate of title No: 21229;

For some unknown reason before the above orders were complied with NBF Asset Management Bank folded and came under the controllership of the Governor of the Reserve Bank, that is, the 1st Respondent. It is perhaps because NBF Asset Management Bank had come under the controllership of the Governor of the Reserve Bank of Fiji that this application was made. This is an application to issue proceedings against the Governor of the Reserve Bank and not the NBF Asset Management Bank. The application is opposed.

Submissions

In its submission the Applicant referred to his application as an application for leave under section 43(1) and not section 42(1) as indicated in the Summons. Section 42 was indeed the incorrect provision in that it deals only with considerations affecting the exercise of the powers of the controller. Section 43 deals with the issue of moratorium. The section states:-

"Moratorium

43.-(1) Where a licensed financial institution is declared to be subject to Controllership, no person shall-

(a) commence or continue any action or other proceedings, including proceedings by way of counterclaim, against that licensed financial institution;

(2) Notwithstanding subsection (1) of this Section, an action or proceeding may be commenced or continued against a licensed financial institution for the purpose of determining whether any right or liability exists if the leave of the Controller or the High Court is obtained.

The Applicant draws the corollary between the cessation of the existence of NBF Asset Management Bank being under the control of the Governor of the Reserve Bank to limited liability company under receivership and arrives at the conclusion that in the same way action can be instituted against the "Receivers" and therefore an action can also be taken against the Governor of the Reserve Bank.

The 1st Respondent on the other hand in its submission thinks otherwise and states that the Applicant is seeking redress from the NBF Asset Management Bank but wants to sue the Governor of the Reserve Bank as the controller. It is seeking specific performance and injunctive relief from the 1st Respondent for the actions of the NBF Asset Management Bank and that the effect of the controllership is to ensure that any actions against the financial institutions should be by the leave of the Court or by the Governor of the Reserve Bank. That instead of seeking leave from the Governor of the Reserve Bank to issue proceedings against the NBF Asset Management it is seeking leave to make it a party. This is not the intention of section 43(1).

Analysis

I agree with the propositions put by the 1st Respondent. The corollary drawn by the Applicant in its submission between a company under receivership and a financial institution under controllership, although novel in its presentation, is not true. It is not true simply because a receivership of a company is distinct from a controllership of a financial institution. In a limited liability company a receiver is appointed upon the company being under liquidation or is wound up, it no longer exists as a legal entity, the official receiver who is appointed to protect or distribute the assets of the company now becomes the entity carrying the liability of the defunct company. Its duties and liabilities are defined by the instrument or statute under which it is appointed. A financial institution is a totally different entity from a limited liability company, its tentacles are far reaching in that its social and economical role within a community or a country more critical. When a financial institution comes under controllership it becomes subject to a regulating mechanism, it still functions as an entity but under control of the controller. When the Governor of the Reserve Bank of Fiji took regulatory control over the administration of NBF Asset Management Bank on 4 May 2007 it acted under S. 30 (2)(c)(i) of the Banking Act 1995. This was achieved with the consent of the Minister for Finance, National Planning, Public Enterprises and Sugar Industry. On the gazetting of the controllership as required under S. 30(4) of the Banking Act the Governor of the Reserve Bank of Fiji assumed control of the NBF Asset Management Bank with effect from the 1st April, 2007. The control that was assumed was a regulatory control enabled by the provisions of the Banking Act 1995, the preamble of which states:-

"To provide for the regulation of the business of banking; providing for the licensing and supervision of financial institutions carrying on banking business, in the interests of the soundness of the financial system and to minimise detriment to the interests of depositors and creditors of financial institutions and for purposes connected therewith" (emphasis added)

As a result of the assumption of the regulatory control of the financial institutions a moratorium on legal actions against the financial institutions is put in place by the Banking Act. Within this scenario one could clearly see that the regulatory control and the moratorium had not taken away the identity of NBF Asset Management Bank as a legal entity. It can still be sued but leave must first be obtained.

Section 43(1) (a) is very clear about the fact that no person shall commence or continue any action or other proceedings against a financial institution subject to controllership. However in spite of this provision an action or proceeding may be commenced or continued against the financial institution for the purpose of determining whether any right or liability exists if the leave of the controller or the High Court is obtained.

This summons is seeking leave to issue proceedings on the controller and not the financial institution. This is contrary to the above provisions in that it seeks to issue proceedings against the controller who also has the power to grant the leave required. I need not determine the second arm of the Section 43 which is whether any right or liability exists sufficient to enable the Court to grant leave.

Conclusion

It is clear from the above that the 1st Respondent is not the proper entity to be included as a party to the proceedings. For this and the above reasons I order that the 1st Respondent be struck out as a party to the proceedings with costs which I summarily assess to be $750:00.
Accordingly so ordered.

H A Robinson
Master,
Labasa High Court
20 January 2012