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The Weakness of the Mauritian Banking System. By Siv Potayya Maitrise en Droit, Barrister at Law Wortels Lexus Chambers


The figures brought forward by our economists and the various statistics demonstrate the brightness of the banking sector in Mauritius. The increasing number of banks * testifies thereto. International and local papers usually praise such performance by using the figures as common denominator. On the other hand, is there anybody caring of the well being of the banks’ customer be it corporate or individual? Does the customer not at times look askance at the Bank? To whom should he address his complaint, save the courts?
The following leads us to a glance at the legal framework of a bank in Mauritius, the status of a customer, the weakness of the banking system and the proposed remedies in the form of suggestions.
A)The legal framework of a bank in Mauritius.
The bank is defined under the provisions of the Banking Act 2004. It is established and secures its banking license under the same enactment and enjoys all the privileges obtained thereunder.The Act provides also for the revocation of the license , and once such license is revoked, such bank will not be able to stop a statutory provision from taking effect “ Union International Bank Ltd. v/s the Bank of Mauritius 1996 SCJ 249 **”
B)The status of a customer
The Banking Act does not say ‘’What is a Customer?, as opposed to a Bank. It has however been decided in the case of Great Western Railway v/s London and County Banking Co., 1901 A.C.414*** , that in order to make a person a customer, there must be either a deposit or a current account or some similar relation. The case of ‘’Hervey v/s MCB Ltd 1893 MR 19 **** has enunciated that the relation between a banker and depositors of money are not those between mandant and mandatory or principal and agent and appears one to be sui generis’’.
What precedes show the inequality between the two players, the first one has been created by Act of Parliament whereas the second one is a product of courts’ judgment commonly known as case law.
C) The weakness of the system
1. The most common available remedies for a customer against his bank may be summed up as follow:
• Where there is “Abus de droit” , the customer may have recourse to the provisions of articles 16 & 17 of the Civil Code “ DBM v/s Francis 1998 MR 19’’ where the bank exercised to recover a loan twelve years after it was contracted and much after the delay for repayment had lapsed.
• Where there is breach of confidentiality of information, he may have recourse to the provisions headed ‘Confidentiality of Information’ under the Banking Act ‘’ Bellepeau & ors v/s Barclays Bank 2005 MR 270’’ where the plaintiff contended suffering prejudice as a result of disclosure of information pertaining to their bank accounts.
• Where the guarantor is asked to pay more than what he owes , he may have recourse to the provisions of the Contract Law “Colonial Governent v/s F.E Olliver 1932 MR 165’’.
• Where there is vicarious liability and fraud by bank officers , he may sue the bank under the provisions of article 1384 of the civil code ‘’Dookhy v/s S.B.M 2007 SCJ 1’’ where the plaintiffs alleged that the bank manager along with a ‘’casseur’’ defrauded them the sum of Rs 300 000 out of collusion.
• Where the real guarantee given exceeds the amount due ‘’Persand v/s The MCB Ltd 1993 SCJ 214’’ the plaintiff may apply under article 2202-15 of the civil code for the erasure or the reduction of the fixed or floating charge.
• Where there is fraud to the bank’s knowledge the customer may apply for an injunction ‘’Saint Michel Marketing Co. ltd v/s South East Asia Bank ltd 1996 MR 144’’
• The increasingly number of the sales by levy has led to the enactment of the ‘’Borrowers Protection Act’’ in 2009.
• All other cases with the contract law in general

2. The Usual defense of the Bank

The usual defense of the Bank, in most cases, is to have recourse to Section 23 under the Bills of Exchange Act , where it would contend having acted in good faith and in the ordinary course of business “MCB Ltd v/s Sadool 1987 MR 42” , to deny the occurrence of the contention or to take points in law.

Have the above tools been sufficiently tailored to effectively protect a customer? The answer is negative and it is deemed appropriate to make the following suggestions.

D.Suggestions.
Some non exhaustive remedies are hereinafter suggested to attempt to compensate the weaknesses of our banking environment and they are the creation of: a Banking Ombudsman, a Bank deposit Guarantee Scheme; and the decriminalisation of the offence of cheques issued without provision

A) Banking Ombudsman
What is a Banking Ombudsman?
A Banking Ombudsman is an independent official who investigates the complaints of individuals against banks. It will operate as a complaint desk. It is a quasi judicial authority which will enable resolution of complaints of banks’ customers relating to certain services rendered by the banks. It will be a free service for customers who have exhausted negotiations with their bank.
How will the Banking Ombudsman fit within the Mauritian banking system?
The assistance of the Law Reform Commission will be needed so as to introduce a Banking Ombudsman Scheme as obtained in India and in England. To give effect to that scheme, banks will be requested to adhere thereto with an undertaking to abide. This office should comprise of lawyers and accountants among others.
What would be the end Result?
• Lesser cases will go to courts,
• Customers’ pain will be lessened,
• Cost effectiveness: both for the government and customers,
• Time saving: both for the government and individuals,
• More appropriate judgments due to specialisation,
• Less wealthy individuals will beneficiate from legal fees of barristers and attorneys,
• Creation of employment,
• Encourage customers who are feeling discriminated or being cheated on to take legal actions against their banks
As the recommendations will be more accurate and appropriate, banks will be discouraged to offer poor services or to contravene the law.
B) A Bank Deposit Guarantee Scheme
Last year, the International Bar Association conducted a worldwide survey as to the existence of a bank deposit Guarantee Scheme in different jurisdictions and the participants were: Argentina , Australia, Austria, Belarus, Canada, Czech Republic, England andWales,Finland,France,Hungary,India,Indonesia,Ireland,Jersey,Malta,Mauritius*****,New Zealand, Nigeria, Poland, Portugal, Romania, South Africa, ,Spain, Switzerland and Thailand. They all have the above scheme to protect bank customers, except Mauritius and South Africa which do not have it yet.
In Mauritius we do have the experience with a) Delphis Bank which stepped into the shoes of BCCI. The latter first changed into First City Bank and to ultimately become Bank One where fortunately the customers did not suffer. b)The License of the Union International Bank was revoked in the mid-nineties. In that case, more than Rupees 16.5 million was embezzled with the complicity of some of the Bank Managers. c)The Mauritius Cooperative Central Bank turned out what is now the Mauritius Post and Cooperative Bank. Is it not urgent to establish such a deposit guarantee scheme in Mauritius?
What does that scheme mainly consist of?
It is usually the management of a deposit guarantee scheme which is governed by special rules and vested with public law powers. There is a mandatory contribution from financial institutions and the proceeds thereof are designed to compensate the depositors in case of winding up of any of the financial institutions. The Insolvency Act has not catered for such situations.

C) The decriminalisation of the offence of cheques issued without provision
In 1994, the author of this article in his ‘’ Pour un règlement rapide des chèques sans provision à Maurice’’ already made proposals as to how to tackle this problem and proposed to decriminalise the offense by establishing the system as obtained in France. He proposed to have a national data file being monitored by the Central Bank. He proposed to remove the use of a cheque book from those who do not know how to handle it. He even highlighted the various legislations to be amended to that effect namely: Section 330 B of the Criminal Code, Section 181 of the Courts Act, Section 88 of the Bills of Exchange Act, the Banking Act and the Bank of Mauritius Act.

Conclusion

The suggestions as above described can be easily implemented and are well deserved ones for Mauritius. The policy makers should think about it well before another bank collapses. If the Bank of Mauritius wishes and if the Government decides, why not?

*The last one being ABC Banking Corporation which started its activities in December 2010
**Supreme Court Judgment
***Appeal cases
****Mauritius Reports
*****The author participated in the survey for Mauritius jurisdiction, Newsletter of the International Bar Association Legal Practice Division Vol 17 No 2 September 2010

Potayya, S. 2011, The Weakness of the Mauritian Banking System. By Siv Potayya Maitrise en Droit, Barrister at Law Wortels Lexus Chambers.

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