Fixed and floating charges in Mauritius as loan facility agreement

Some five years after the Dutch left, the French, under the Commandment of l’écuyer Guillaume Dufresned’Arsel and in the name of the King of France, took possession of Mauritius island on the 20 September 1715. In 1810, they handed over the island to the British who occupied it until

12 March 1968 when the latter became independent. In so doing, both have largely contributed towards the enrichment of the loan facility agreements and the governing legislations. Some confusion has however cropped up: the way overdue interest should be computed has never been a moot point before our Supreme Court though it is not done as per the provisions of the French Laws for the reasons which will become apparent below.

The French colonisation ended on or about 3 December 1810 and, when the British took over both parties signed the “Acte de Capitulation’ wherein it was agreed that the British would preserve the existing laws, religion and customs. Previously, in or about 1805, the Code Napoléon already became effective in Mauritius and the contents thereof were required to be kept by the British and to be operative over the island.

In 1838, Mauritius experienced the genesis of the banking business and presumably all secured facilities were based on British model as we were still under the British era.

If the drafting of the “hypothèque’’ was and is still subject to French laws under the Code Napoléon, the drafting of most of the debentures and other bank guarantees followed the British format according to the British legislation. The country was then subject to the provisions of Ordinances legislated in London.

On 12 March 1968, the island became independent and subsequently the Mauritian parliament took over all legislative process.

In 1969, Mauritius witnessed for the first time a legislation headed the “Loans, charges and Privileges (Authorised Bodies) Act” which made provision for the creation of a lien and a right of set off in favour of banks; to provide for loans against deposits of share or debenture certificates; to provide for capitalisation of interest on certain loans; to create fixed and floating charges and to provide for all matters connected therewith on incidental thereto. 

Under Section 5, it was provided as follows: “Where, by an instrument in writing, a loan is made to any person by an authorised body and the total repayment period exceeds three years; the instrument witnessing the loan may include provision for the capitalisation of the interest that may become due.” This piece of legislation had however not specified how the interest should be computed.

In 1971, the above legislation was amended to be ultimately repealed in 1983 and the provisions relating thereto are now found under article 2202 and subsequent of the Code Civil Mauricien (ex-Code Napoléon). The provisions enabling the capitalisation of interest are now found under
article 2202-6 of the Code with the same condition that the duration of the loan should exceed three years. Interest is being capitalised at the whims of the creditors.

All the institutions, so authorised under the Civil Code such as banks and insurance companies, do capitalise all interest due on a monthly basis. It is performed on credit cards on a daily basis by some banks. Many debtors have found themselves in dire condition following the seizure
and sale of their property given as collateral owed to non-payment of their indebtedness in a timely manner and have seen the amount due as interest levelling the amount in capital due.

The reason is simply because no heed is paid to the provisions under Article 1154 of our Civil Code which explain how interest due should be computed. That article was borrowed from the Code Napoléon and the Acte de Capitulation as above referred to is being overlooked.

The provisions of article 1154, which is of public order, stipulate that only interest which is of one year old may be capitalised.

The non-observance of these provisions had led to great turmoil in the country. The procedures as laid down under the Sale by Levy Act are often resorted to by the creditors to dispose of immovable property given in guarantee before the Master’s Bar at the Supreme Court to get repaid.

In 2007, to lessen the pain of the borrowers, the Mauritian Parliament came forward with the Borrower Protection Act to regulate credit agreements for a sum not exceeding two million rupees and to provide for the establishment of the Office of the Commissioner for the Protection of Borrowers.

The expected result has not been attained as the worm is still in the fruit and so far the provisions under article 1154 of the Civil Code are not complied with, injustice and unfairness will benefit the creditors who are acting in the way they are used to.

This point has been taken in few cases which are awaiting their turn to be heard before our Supreme Court.