Press Release No: Individual Application 66/18
08.11.2018

PRESS RELEASE CONCERNING THE JUDGMENT FINDING NO VIOLATION OF THE RIGHT TO PROPERTY DUE TO INVALIDATION OF THE SET-OFF AND DEDUCTION OF THE LIQUIDATED RECEIVABLE FOR THE DEBTS OWED TO A THIRD PERSON

On 12 September 2018, the Second Section of the Constitutional Court found no violation of the right to property safeguarded by Article 35 of the Constitution in the individual application lodged by Türkiye İş Bankası A.Ş. (2) (no. 2015/7179).

The Facts

The applicant Türkiye İş Bankası A.Ş. (“İş Bankası” or “the bank”) and its subsidiaries sold their shares of Türk Dış Ticaret Bankası A.Ş. (Dışbank) to a holding company and received an advanced payment of 75 million dollars.

As a result of the inquiry conducted by the sworn auditors of the banks and the financial inspectors, it was determined that Dışbank sustained losses under the new management and therefore the holding company was removed from management.  

İş Bankası, considering that the remaining sale price of the shares of Dışbank would not be paid, annulled the sales agreement it had signed with the holding company and signed a new sales agreement with the holding company to receive back the shares it had already sold. As a result of this transfer, İş Bankası owed 75 million dollars to the holding company due to the latter’s advance payment. The bank did not pay this amount to the holding company.

Upon the bankruptcy of a company within the holding company, the bankruptcy office sent a notification to İş Bankası. The notification stated that the 75 million dollars in question had been transferred from the resources of the bankrupt company and that therefore İş Bankası owed 75 million dollars to the bankrupt’s estate. The Savings Deposit Insurance Fund (“the Fund”) demanded the amount in question form the applicant with interest.

The applicant filed a case before the Council of State, stating that the price of the shares at the time they had been sold was not equal to their value on the date when they were taken back, that during this period there had been a great decrease in the value and that the amount in question had been subject to set-off and deduction transactions against the warranty debts and the mentioned decrease in the value. The Council of State annulled the Fund’s decision. Upon appeal against the decision of the Council of State, the decision was quashed by the Plenary Session of the Chambers for Administrative Cases of the Council of State (“the Plenary Session”). The applicant’s request for the rectification of the decision was dismissed. The relevant Chamber of the Council of State complied with the quashing decision. Upon appeal, the Plenary Session upheld the decision.     

The Applicant’s Allegations

The applicant claimed that its right to property was violated.

The Constitutional Court’s Assessment

There is no doubt that collection from the applicant of the amount which it had subject to set-off and deduction transactions constituted an interference with its right to property.

The transaction in question had a legal basis and served the public interest, the relevant institutions acted in order to redress the public loss and there existed no concrete information or document indicating the contrary. It must therefore be acknowledged that the interference pursued the legitimate aim of public interest.

The public authorities are expected to examine whether there was a proportionality relationship between the aim sought to be achieved by the interference with the applicant’s right to property and the means employed.

It is primarily at the discretion of the incumbent public authorities to make an assessment as to the necessary measures in terms of the collection of the liquidated bank receivables within the scope of the regulation and control of the banking sector.

In the present case, there is no reason to depart from the assessments of the public authorities as to the necessity of the interference for the collection of the liquidated bank receivable.

It is clear that the liquidated company owed debts to the applicant company and its subsidiaries. In accordance with the right to property, the applicant is certainly entitled to collect these debts. However, the applicant executed set-off and deduction transactions to discharge the debts it owed to the holding company in the capacity of third person. According to the administration and the inferior courts, this transaction amounts to the use of liquidated bank resources.

In addition, with this transaction, the applicant company could unlawfully collected its receivables, prior to the other creditors. The applicant’s allegation that it was already entitled to collect its receivables with priority may be subject to examination by the public authorities. The applicant may also bring an action against the assessments to be made by the public authorities.

It was obvious that the disputed money would be used to cover the debts of the liquidated company. This is stipulated by the legal provisions where it is prescribed that in case of bankruptcy and liquidation, receivables shall be paid from the assets of the debtor in a certain order for the purposes of public interest, and the public authorities have a certain discretion at this point. Accordingly, the applicant was not deprived of its receivable, as well as there existed appropriate legal mechanisms to facilitate its collection of such receivable. Otherwise, the other creditors’ interests within the scope of the right to property might be damaged.

In the present case, the applicant failed to demonstrate that the available legal mechanisms were insufficient, nor did it submit any concrete fact indicating that the public authorities failed to show due diligence in the execution of these mechanisms.

In this case, the interference with the applicant’s right to property did not impose an excessive or extraordinary burden on the applicant and the fair balance between the public interest served by the interference and the applicant’s right to property was not impaired. Thus, the alleged interference was proportionate.

Consequently, the Constitutional Court found no violation of the applicant’s right to property safeguarded by Article 35 of the Constitution.

This press release prepared by the General Secretariat intends to inform the public and has no binding effect.

The Constitutional Court of the Republic of Turkey © 2019