Union Assurance, one of Sri Lanka’s premier Life Insurance providers, hosted another episode of the ‘Circle of Well-being’ series. The episode offered knowledge on how people can manage their property intelligently, handle credit responsibly and achieve effective asset management. Insights shared by Attorney-at-Law, Mahinda Pathirana form the basis of this article.

Adhering to a Structured Procedure when Lending Money

In an emergency, it’s common to trust someone and provide a loan based on a verbal agreement. However, over time, the borrower might forget about the loan, which could result in a financial loss for you. In such instances, law outlines several steps you can follow to minimise this risk.

First, you should write a letter to the borrower detailing the loan date, the borrowed amount, and the repayment due date. Retain a copy of this letter for your records. Next, send the letter to the borrower via registered mail and keep the receipt from the post office as proof of mailing.

Next, visit the police station to file a complaint regarding the loan and obtain a copy for your records. If the loan amount is less than Rs. 500,000, the issue will be handled by the Mediation Boards Commission. You should then go to the Divisional Secretary’s office, where you can meet with the Mediation Boards’ Officer, explain your situation, and submit the issue to the Mediation Boards Commission using the provided form.

If the Mediation Boards Commission is unable to offer a satisfactory resolution, they will issue a non-settlement certificate. With this certificate, along with the copies of the previously mentioned documents, you can file a monetary case in court through a lawyer, offering you the possibility of achieving a favourable outcome.

However, the case must be filed against the borrower within three years of receiving the loan.

When there is a Promissory Note/Written Agreement between the Borrower and the Lender

In this situation, you must first file a complaint with the police and seek resolution through The Mediation Boards Commission. If not, you can file a monetary case against the individual in court through a lawyer. This legal action must be initiated within six years of the written agreement between the two parties.

Two notable cases have been brought before the court pertaining to this matter:

Indian Overseas Bank v. Ramadas

Merchant Bank v. Buddhadasa (Sri Lanka)

The distinctive feature of these cases is that the court based its proceedings on the date of the breach, rather than the original date of the agreement.

The Importance of Documenting One’s Property and Assets

When a person who has borrowed money passes away, his or her family can face considerable difficulties. Since no one knows when their time will come, it falls on the borrower alone to ease this burden. Therefore, the most valuable investment a borrower can make for their family is to meticulously document their income and expenses.

Additionally, if the borrower owns any assets, they should record the locations of all related documents, details of any institutions or individuals holding mortgages on those assets and the amounts owed to each. This information should be securely stored and family members should be informed and given access to these records.

It is also important to inform your family about the details of your bank accounts, including how they can contact the bank and access the funds in your absence.

This ensures that family members can methodically manage your loans and financial obligations in your absence.

Online Loan Transactions and Fraud

In today’s economic context, the demand for quick financial solutions has led to the growing popularity of online loans for those in need of immediate funds. However, these lenders can sometimes operate in a manner similar to traditional moneylenders, resembling the role of the village usurer.

These financial institutions, which do not have fixed interest rates, frequently increase their rates at their discretion. Consequently, borrowers who secure loans through online platforms often face interest payments that far exceed the original loan amount.

When obtaining a loan online, the institution often gains access to your mobile phone data. This can result in harassment, with the institution making repeated and threatening calls to both you and your loved ones to demand repayment.

Moreover, since these institutions are not registered by the Central Bank, they do not bear any responsibility for the money you provide. As a result, many individuals using these online platforms may fall prey to financial scams and lose their money. Therefore, the quick availability of funds should not prompt you to resort to take services from such institutions.

Credit Information Bureau of Sri Lanka (CRIB)

Established under the Credit Information Bureau Act No. 18 of 1990, this bureau is owned by the Central Bank and over 70 institutions registered with the Central Bank, including commercial banks, statutory banks, financial companies, and leasing firms.

The primary role of this bureau is to systematically collect and manage information on both existing and prospective borrowers.

Once you secure a loan from any bank or financial institution registered with the Central Bank, your name, along with the names of the two witnesses who sign on your behalf, will be recorded by the bureau. The bureau then monitors whether you are repaying the loan as agreed or if you have defaulted. Subsequently, the Credit Information Bureau provides the relevant institutions with an assessment of your eligibility for further loans.

How the Property is Distributed upon the Demise of an Individual

In addition to Roman-Dutch law, which serves as the common law in Sri Lanka, the following three regional laws are also in effect in the country.

The Kandyan Law

The Thesawalamai  Law

The Muslim Law

Each of these legal systems outlines how property should be owned, utilised, and formally distributed.

The Matrimonial Rights and Inheritance Ordinance of 1876, which falls under the common law, outlines the process of distribution of both movable and immovable property.

Under the common law, upon the death of a married individual, the wife is entitled to receive half of the deceased’s property. The remaining half is to be distributed equally among the deceased’s descendants, including parents, children, and siblings.

Under the Kandyan law, there are two types of marriages: Diga and Binna. According to this law, a daughter who marries and leaves her father’s home is not entitled to any of her father’s property.

The Thesawalamai Law also specifies various approaches for dividing property. According to Muslim law, the property is allocated among children in a 2:1 ratio, where male children receive a greater share compared to female children.

After an individual’s death, their property does not automatically transfer to family members. To ensure a clear and orderly division of the property, a hearing must be conducted before the District Court. Following this, a detailed description of the divided property should be published in a newspaper advertisement in all three languages.

If the total value of the deceased’s assets exceeds 4 million, the Civil Procedure Code mandates that a property case must be filed at the court. However, as legal advisors, we recommend that all clients, regardless of the asset value, file a property case to ensure a proper and orderly division of property.

Orderly Transfer of your Property

In legal terms, property encompasses both immovable and movable assets acquired by an individual during their lifetime. Before passing away, a person can transfer these assets to favoured individuals, institutions or organisations.

During their lifetime, an individual can transfer property to another person or organisation through a deed of gift, while retaining the right to live in the property until their death. This arrangement allows the individual to cancel the transfer and reassign the property to someone else if desired in the future.

In certain cases, you may transfer your estate to another person via an irrevocable gift deed. However, if issues arise with the transferred property, you may need to pursue legal action to reclaim your property.

Another method is to transfer your property through a last will, as stipulated by the Prevention of Frauds Ordinance No. 7 of 1840. To create a valid last will, you must be at least 18 years old and of sound mind at the time of writing it.

A last will can be executed in two ways:

Signing in the presence of a lawyer with two witnesses.

Drafting the will according to your wishes and having it signed by five witnesses.

Thus, if you want to add a new property to the last will you write later, you can add a new attachment to it. It refers to the codicil.