Colombo, 30 September 2026 – In a significant judgment impacting banking and debtor-creditor relations in Sri Lanka, the Supreme Court has dismissed an appeal filed by Anguru Kankanamge Naransi Jinadasa against the Commercial Bank of Ceylon PLC. The apex court affirmed the Commercial High Court’s decision, allowing the bank to recover outstanding rescheduled loan facilities, and critically, upheld the bank’s right to charge variable interest rates as per contractual agreements.
The Genesis of the Dispute: Unsettled Loan Facilities
The case, titled Commercial Bank of Ceylon PLC v. Anguru Kankanamge Naransi Jinadasa (SC (CHC) Appeal No. 14/2023), originated from the defendant’s failure to settle multiple loan facilities obtained from the Commercial Bank of Ceylon. The defendant, a customer of the bank, had secured these facilities through several mortgage bonds (P2, P4, P6, P8) over properties detailed in the plaint.
Following a default, the bank and the defendant agreed to reschedule the outstanding capital and interest into three new term loans (Loan No. 1, Loan No. 2, and Loan No. 3) through an offer letter dated 20th August 2009 (P12). These rescheduled loans were to be cumulatively secured by the existing mortgage bonds and a new secondary mortgage bond (P10).
However, the defendant subsequently failed to meet the repayment terms of the rescheduled loans, prompting the Commercial Bank of Ceylon to institute legal action in the Commercial High Court of Colombo to recover the outstanding sums totaling over Rs. 15.9 million (capital only, excluding interest) and seek an order for the sale of the mortgaged properties.
High Court Ruling and Supreme Court’s Clarification on Security
The Commercial High Court delivered its judgment on 3rd July 2020, largely in favour of the Commercial Bank, granting the relief prayed for. However, it made one exception, holding that the amounts due under Loan No. 3 (Rs. 2,359,000) were not secured by any of the mortgage bonds, thereby precluding their recovery from the sale proceeds of the mortgaged properties.
Upon appeal to the Supreme Court, a bench comprising Justices Janak De Silva, Arjuna Obeyesekere, and Dr. Sobhitha Rajakaruna, with Justice Obeyesekere delivering the judgment, clarified this specific point. The Supreme Court unequivocally held that the High Court had erred in its finding. Based on P12, the Supreme Court determined that the security offered by all mortgage bonds (P2, P4, P6, P8, and P10) was indeed applicable to all three rescheduled loans. The Court stated that while all three loans were secured, the total capital recoverable from the sale proceeds would be limited to Rs. 13,800,000, in addition to interest and other sums stipulated in the mortgage bonds.
Key Grounds of Appeal Dismissed
The defendant-appellant raised two primary grounds to challenge the High Court’s judgment:
Variable Interest Rates Upheld
The first contention revolved around the interest rate claimed by the bank. The defendant argued that the 22% interest rate sought by the bank was contrary to the rates specified in the mortgage bonds (15%, 16%, 20%, 19%) and the rescheduling offer letter P12 (19% per annum).
The Supreme Court, after careful consideration of P12, the general terms and conditions (P13, P18, P20) signed by the defendant, and the mortgage bonds, affirmed the High Court’s conclusion. Justice Obeyesekere highlighted that P12 explicitly stated that interest was payable “at 19% per annum plus levies thereon payable monthly subject to fluctuations at the sole discretion of the Bank.” Similar provisions for variable interest rates were found in the mortgage bonds themselves, allowing the bank to charge “at such rate or rates as may from time to time be fixed or charged by the Bank.” The Court concluded that the defendant had clearly agreed to a variable interest rate, empowering the bank to adjust it according to market rates and its usual course of business.
No Misjoinder of Causes of Action
The second ground of appeal questioned whether the Commercial Bank could recover moneys outstanding under three separate loans in a single action, especially since these loans were secured by different properties. The High Court had answered this in the affirmative, a finding the Supreme Court upheld.
The Supreme Court clarified that P12 constituted a single agreement to reschedule the defendant’s existing liabilities into three separate loans, all cumulatively secured by the aforementioned mortgage bonds. Therefore, all three causes of action arose from this single rescheduling agreement (P12), and the action did not constitute a misjoinder of causes of action.
The Final Verdict
In light of these findings, the Supreme Court dismissed the appeal without costs. The judgment of the High Court was affirmed, with the crucial variation that the Commercial Bank of Ceylon PLC is entitled to recover the capital outstanding under all three rescheduled loans from the proceeds of the sale of the mortgaged properties, subject to a total capital limit of Rs. 13,800,000, alongside all accrued interest and other sums provided for in the mortgage bonds.
This ruling reinforces the contractual validity of variable interest rates in loan agreements and clarifies the ability of banks to pursue cumulative recovery for restructured loan facilities secured by multiple properties under a single, overarching agreement in Sri Lanka.
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