1. Introduction
The Supreme Court of Sri Lanka has delivered a decisive judgment in the case between Sri Lanka Savings Bank Limited (Plaintiff-Appellant) and Habib Bank AG Zurich (Defendant-Respondent), with Hatton National Bank Limited as the Substituted Defendant-Respondent. The case, registered as S.C. (CHC) Appeal No. 22/2010, arose from a banking dispute concerning the non-release of a deposit by the defendant bank.
On August 8, 2024, the Supreme Court allowed the appeal filed by Sri Lanka Savings Bank, thereby overturning the Commercial High Court’s judgment of October 12, 2010, which had dismissed the bank’s claim. The Supreme Court granted reliefs as per the prayers (a), (b), (c), and (h) of the original Plaint dated June 6, 2001, which included an interest rate of 32% per annum on Rs. 78,400,000 from May 5, 2001, until full payment.
Following this decision, the Defendant-Respondent filed a motion on August 5, 2024, seeking reconsideration of the interest rate awarded, arguing that it was granted per incuriam (in ignorance of the law). However, the Supreme Court, after reviewing written submissions, dismissed the motion, affirming the plaintiff’s entitlement to the interest as claimed.
2. Background of the Case
2.1 Parties Involved
- Plaintiff-Appellant: Sri Lanka Savings Bank Limited
- Defendant-Respondent: Habib Bank AG Zurich, a Swiss-incorporated bank operating in Colombo.
- Substituted Defendant-Respondent: Hatton National Bank Limited
2.2 Summary of Dispute
The case arose from a banking transaction in which Sri Lanka Savings Bank had placed a deposit with Habib Bank AG Zurich. The core issue in dispute was the defendant bank’s refusal to release the deposit and its accrued interest, citing a right to set-off.
The plaintiff argued that the refusal was unjustified and unlawful, and sought:
- Release of the deposit amount of Rs. 78,400,000.
- Interest at 32% per annum from May 5, 2001, until full payment.
The Commercial High Court of Colombo, in its October 12, 2010 judgment, dismissed the plaintiff’s claim, prompting the appeal to the Supreme Court.
3. Supreme Court Judgment
3.1 Overruling the Commercial High Court’s Decision
The Supreme Court, after reviewing the case, found that the Commercial High Court had erred in its decision to dismiss the plaintiff’s claim. On August 8, 2024, the Supreme Court:
- Allowed the appeal,
- Set aside the October 12, 2010 judgment,
- Granted the reliefs requested by the plaintiff, including the 32% interest rate on the deposit.
3.2 The Motion Challenging the Interest Rate
After the Supreme Court’s ruling, the Defendant-Respondent filed a motion on August 5, 2024, arguing that the interest rate of 32% per annum was awarded per incuriam, meaning the court had overlooked Section 192 of the Civil Procedure Code.
The defendant contended that:
- Section 192 limits interest claims to legal or agreed rates.
- The 32% rate was unreasonable and exceeded what was permitted under the law.
However, the Supreme Court, in its decision on March 5, 2025, dismissed the motion, stating that:
- The interest rate was an integral part of the plaintiff’s claim, explicitly mentioned before the case was filed.
- The defendant had never formally challenged the 32% interest rate during the trial or at the appellate stage.
- The refusal to release the deposit was unlawful, justifying the higher rate.
4. Legal Analysis
4.1 Interpretation of Section 192 of the Civil Procedure Code
The Supreme Court analyzed Section 192 of the Civil Procedure Code, which governs interest in monetary claims.
Key aspects of Section 192:
- Courts may award interest based on an agreement or, in its absence, the legal rate determined by the Monetary Board.
- It provides discretionary interest to compensate for delays in litigation.
The defendant argued that the 32% rate was excessive under this section. However, the Supreme Court clarified that Section 192 applies only when interest is discretionary. In this case, the plaintiff’s claim was based on an established entitlement, not discretionary interest, thus making Section 192 inapplicable.
4.2 Banking Sector Precedents and Trade Practices
The Supreme Court relied on banking practices and legal precedents, including:
- Nimalaratne Perera v. People’s Bank (2005) 1 Sri L R 67 – which held that banking transactions are not limited by Section 5 of the Civil Law Ordinance in terms of interest recoverability.
- Customary banking practices allow banks to charge high-interest rates on delayed payments.
- The defendant bank had prior notice of the 32% claim through multiple written communications but failed to contest it in court.
4.3 Defendant’s Failure to Challenge Interest Rate During Proceedings
- The defendant was informed in writing (May 4, 2001, and May 14, 2001) about the 32% claim.
- No formal issue was raised in response.
- During cross-examination, the plaintiff’s witness justified the rate based on prevailing default interest rates in the banking sector.
- The Commercial High Court never explicitly ruled on the interest rate, as it had dismissed the case entirely.
Based on these factors, the Supreme Court dismissed the defendant’s motion, affirming the 32% interest entitlement.
5. Implications of the Judgment
5.1 Legal Precedent
- Strengthens protections for deposit holders, reinforcing the principle that financial institutions cannot unjustly withhold funds.
- Clarifies that interest rates in financial disputes can be based on agreements, trade practices, and implied entitlements, rather than being strictly limited by procedural laws.
5.2 Financial Sector Impact
- Banks and financial institutions must ensure transparency in handling deposit disputes.
- The ruling discourages unlawful retention of funds based on weak legal arguments such as set-off claims.
- May lead to higher default interest claims in future banking disputes.
5.3 Strengthening of Contractual Obligations
- Reinforces that interest claims form part of a legal entitlement if established through prior agreements or customary trade practices.
- Courts are unlikely to override contractually agreed interest rates, provided they do not violate statutory limitations.
6. Conclusion
The Supreme Court’s ruling in Sri Lanka Savings Bank v. Habib Bank AG Zurich is a landmark decision in Sri Lankan banking and contract law. By allowing the 32% interest claim, the court reaffirmed that:
- Banks cannot arbitrarily withhold deposits.
- Interest rates established through banking practices are enforceable.
- Failure to challenge claims at the proper stage weakens a defendant’s position.
The decision sets a strong precedent for future banking disputes, reinforcing the protection of depositors’ rights and ensuring that financial institutions are held accountable for unjust enrichment.
7. References
- Supreme Court Judgment: S.C. (CHC) Appeal No. 22/2010
- Civil Procedure Code (Sri Lanka) – Section 192
- Nimalaratne Perera v. People’s Bank (2005) 1 Sri L R 67
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