DELPHIS BANK v.

PRIME MINISTER OF MAURITIUS 2002 SCJ 193

2002 MR 199

Record No: 77800 IN THE SUPREME COURT OF MAURITIUS In the matter of: The Delphis Bank (in receivership), a public company incorporated in Mauritius, represented by its Director, having its registered office at 16, Sir William Newton Street, Port Louis Applicant v. 1. The Hon. Prime Minister of Mauritius 2. The Bank of Mauritius Respondents In the presence of: Yuvraj Thacoor Co-Respondent Ex-Parte: The Delphis Bank (In Rec.) Applicant JUDGMENT

This is an application entered on 24 April 2002 for leave to apply for a judicial review of the decision of 8 March 2002 by the second respondent (1) to revoke the applicants banking licence and (2) to reject the applicants appeal against the revocation of the banking licence.

At the sitting of 3 June 2002 when the case was mentioned, counsel M. Gujadhur instructed by Miss Salajee, attorney at law, appeared in court and took objection to this application being proceeded with on the ground that they have been retained as counsel and attorney by the co-respondent to appear for Delphis Bank Ltd. in receivership and that by virtue of an Order of the Bankruptcy Court dated 15 March 2002, only the co respondent as the receiver and manager of the Company was entitled to institute proceedings in the name of Delphis Bank Ltd. and that consequently, the attorney who had entered this application had no right to do so.

Learned counsel for the second respondent and for the co respondent having taken a similar stand, we invited the parties to address us on the locus standi of the applicant represented by one of its directors as a preliminary point.

In substance, the argument of counsel appearing for the second respondent and corespondent, was to the effect that since The Delphis Bank Ltd. has been placed in receivership by virtue of an order of the court, all the powers of the directors of the Company have been vested in the co-respondent as receiver and manager and only the latter is now empowered to initiate legal proceedings on behalf on the Company in receivership. Hence, the attorney at law, who incidentally became a director of the Company in receivership on 25 April 2002, had no locus standi to enter this application.

It is further contended that there is no evidence as to whether Mr. Appa Jala has been duly mandated by the board of directors to enter this application on its behalf. We shall straightaway say that there is indeed no such evidence before us.

Learned counsel for the applicant submitted that (1) since the application contains a prayer for the quashing of the co-respondents appointment as receiver and manager, the latter would be in a situation of conflict if he were to represent the Company and decide on the propriety of this application; (2) this application is independent of the assets in the receivership and therefore the directors cannot be said to be interfering with the management of the company by the co-respondent; (3) the co respondent is acting mala fides by attempting to discontinue the present application; (4) the directors are empowered to initiate proceedings in view of the co- respondents failure to do so.

Learned counsel for the applicant has referred us to cases where the court held in substance that the directors of a company in receivership were not totally divested of their powers and that they too had a right to act and initiate proceedings on behalf of their company.

For instance, in the case of Hawkesbury Development Co. Ltd v. Landmark Finance Pty. 10 [1969] 2NSWR 182, the question was whether the directors could bring an action in the name of the company to challenge the security under which the receiver was appointed. Street J was of the view that the directors did have residual powers and duties with regard to the companys internal domestic structure even when their company was in receivership. He further held that a valid receivership and management will ordinarily supersede, but not destroy the companys own organs through which it conducts its affairs. The capacity of those organs to function bears an inverse

relationship to the validity and scope of the receivership and management. He added that directors would presumably also have the right to challenge acts of a validly

appointed receiver on the grounds of excess of authority or misfeasance on his part but pointed out that within its scope, the receivers agency is exclusive.

The case of Newhart Developments Ltd v Co-operative Commercial Bank Ltd (1991 3WLR 750) was also cited. In this case, as we read in Hubert Picardas book The Law relating to Receivers, Managers and Administrators, Second Edition at pages 87-89, Shaw L J was of the view that a receiver might be entitled to ignore the claims of anybody outside the debenture holders and in that case, the directors of the company who were divested of their powers only with regard to the provisions of the debenture instrument , were entitled to enforce a claim or even to exploit the assets of the company in the interest of the company and of the other creditors provided that they did not in any way threaten or imperil the assets which were subject of the charge of the debenture holders.

In Tudor Grange Holdings V Citybank N.A 1991 W.L.R, Brown-Wilkinson V.C held that since the causes of action were the property of the companies subject to the rights of the receiver, the directors did not have power to conduct legal proceedings on the companies behalf in the absence of any indemnity to protect the companies assets in the event of costs being awarded against them.

Keane J in Lascomme Ltd v UDT High Court 1991 .277 made a similar pronouncement with regard to the directors powers which should not be used in any manner which interferes with the receivers ability to deal with or dispose of the assets charged with the debenture.

We note here that in the above cases cited on behalf of the applicant, the receivers and managers were appointed by debenture holders and as such, their object was principally to realise the debentures security. The proposition of law that emerges from those cases is that directors of companies in receivership may indeed act on their residual powers to safeguard the interest of their companies and their creditors.

In the present case, it transpires from the affidavit and documentary evidence that it was upon the application of the Mauritius Ports Authority that the learned Judge in Bankruptcy made the interim order appointing the co-respondent as receiver manager and the following powers are amongst those given to him in the order:(i) to take possession of, collect and get in all or any part of the assets of the respondent. and for that purpose to take any proceedings in the name of the Respondent or otherwise as he shall think fit; () (v) to take, continue or defend any proceedings locally or abroad and make any arrangement or compromise on behalf on the Respondent as he may think fit; () (xi) to exercise all powers generally vested in the board of directors of the Respondent except for the approval of accounts of the Respondent for the financial year ended 31 December 2001.

The receiver and manager appointed by the court, unlike one appointed by a debenture holder, holds the legal status of an officer of the court and during that time, his appointment entirely supersedes the powers of the company and the authority of its directors in the conduct of its business in respect of assets within the scope of the

charge which remain in abeyance during his appointment; his role is to assume the safe keeping and protection of the companys property for the benefit of the parties interested in it and any interference within the scope of his powers is a contempt of court. However, like in the case where the appointment is by a debenture holder, the company and its directors retain the same residual power and authority to act and to sue in the companys name after having obtained the sanction of the court where the receiver and manager has failed to act.

We are of the view that the terms of the receivership charge as we have set out above are wide enough to confer exclusive powers on the receiver and manager to enter any legal proceedings on behalf of the Company and consequently, the directors had no authority to overstep their residual powers to lodge this application in the name of the Company in receivership without the consent of the co-respondent. It was open to the directors to apply to the Judge in Bankruptcy for leave to initiate proceedings on the ground of the co- respondents failure to act and this they have failed to do.

For the above reasons, we uphold the objection of counsel and attorney retained by the co-respondent to appear for the Company in receivership as supported by the second respondent and the co-respondent and find that the attorney had no locus standi to make this application which is accordingly set aside. With Costs.

E. Balancy Judge

P. Balgobin Judge 25 July, 2002 Judgment delivered by Hon. P. Balgobin, Judge ---------For Applicant: Mr. Attorney A. Abbasakoor Mr. T. Gujadhur, of Counsel For Respondent No. 1: State Attorney Mr. S. Bhaukaurally , Ag. Assistant Solicitor General For Respondent No. 2: Mr. G. Ramdewar, S.A Mr. D. Basset, Senior Counsel For Co-Respodent: Mr. Attorney G.M Leclezio Mr. R. Pursem, of Counsel