Bank fails in bid to enforce payment of debt in court dispute

Al Baraka Bank. Picture: Assegai & Javelin Advertising/African News Agency (ANA)

Al Baraka Bank. Picture: Assegai & Javelin Advertising/African News Agency (ANA)

Published Jun 17, 2022

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Cape Town - A bank has failed in its high court attempt to enforce payment of a disputed debt owed to it by a company since 2015 after a judge dismissed the application.

Al Baraka Bank instituted winding-up proceedings against Cecita, a registered close corporation which owns undeveloped land that is bonded to the bank as security for a loan.

The issue before Judge Mokgere Masipa in the Durban High Court was whether the bank was entitled to bring its application to wind up Cecita despite having already instituted an action which Cecita had defended, or whether this would be an abuse of process.

Al Baraka Bank and Cecita concluded Musharakah agreements, which are agreements similar to joint venture agreements, in 2015.

In terms of these agreements, the bank lent various sums of money to Cecita which were to be repaid monthly. Cecita then used part of the money loaned to acquire the property.

Al Baraka argued that Cecita breached the agreements by failing to pay the monthly instalments.

At the start of the case, reference was made to two accounts. The arrears in one account stood at R446 570.25 and the arrears in the other at R832 140.20, with the last payment being made during November 2017.

In 2018, Al Baraka launched an action against Cecita, saying Cecita had denied liability and made no efforts to comply with pre-trial preparations. In July 2020, Al Baraka issued a notice in terms of Section 69 of the Close Corporations Act, urging Cecita to pay the arrears totalling R167 247.40.

The Sheriff of the court served the letter but there was no payment by Cecita and Al Baraka argued in its case that the only reasonable inference to draw from this was that Cecita was unable to pay its debts. This was what led to the winding up proceedings.

In its arguments, Cecita denied being insolvent. The company’s lawyers argued that Al Baraka had failed to appreciate their client’s defence, which was the bank’s failure to appropriate payments made to the correct account, together with inconsistency regarding the debt allegedly due.

Cecita also argued that the action between both parties was still pending and that after delivering its plea, Al Baraka did not apply for summary judgment.

Cecita argued that in the absence of a summary judgment application, Al Baraka’s conduct was tantamount to an admission that Cecita has a bona fide defence to the action and that the new application constitutes an abuse of process.

Judge Masipa said that while the loan was not in dispute and a Section 69 notice was issued, it was common cause that the bank instituted an action prior to launching this application based on the same debts.

“There was no reasonable explanation why this avenue was not explored when it could have resulted in the applicant obtaining judgment much sooner than following a lengthy, protracted trial process,” Judge Masipa said.