Lt

On the Law on Commercial Banks

Case No. 12/95

 THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA

 R U L I N G

 On the compliance of Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, Article 45 and Paragraphs 2 and 3 of Article 46 of the Republic of Lithuania’s Law on Commercial Banks with the Constitution of the Republic of Lithuania

 18 April 1996, Vilnius

The Constitutional Court of the Republic of Lithuania, composed of the justices of the Constitutional Court: Egidijus Jarašiūnas, Kęstutis Lapinskas, Zigmas Levickis, Augustinas Normantas, Vladas Pavilonis, Jonas Prapiestis, Pranas Vytautas Rasimavičius, Teodora Staugaitienė, and Juozas Žilys

The court reporter—Daiva Pitrėnaitė

Feliksas Kolosauskas, a member of the Seimas, and Gintaras Kukauskas, the deputy head of the Legal Division of the Bank of Lithuania, both acting as the representatives of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on Constitutional Court of the Republic of Lithuania, in its public hearing, on 2 April 1996, considered case No. 12/95 subsequent to the petition submitted to the Court by the Panel of Civil Cases of the Court of Appeal of Lithuania requesting an investigation into whether Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, Article 45, and Paragraphs 2 and 3 of Article 46 of the Republic of Lithuania’s Law on Commercial Banks are in compliance with the Constitution of the Republic of Lithuania.

The Constitutional Court

has established:

I

On 4 October 1995, the Panel of Civil Cases of the Court of Appeal of Lithuania, the petitioner, was investigating civil case No. 2-36/1995 subsequent to individual complaints of the persons of the third party Z. Barkauskas, Č. Maciulevičius, J. Sprindžiūnas and K. Stelingys concerning the 12 May 1995 ruling of the Vilnius District Court to institute bankruptcy proceedings against the joint-stock credit bank “Nida”.

The said court suspended the investigation of this case and applied to the Constitutional Court requesting an investigation into whether Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Article 45 of the Republic of Lithuania’s Law on Commercial Banks (Official Gazette Valstybės žinios, 1995, Nos. 2-33, 107-2411; 1996, No. 19-495; hereinafter referred to as “the Law”) are in compliance with Paragraphs 1 and 2 of Article 23, and Paragraph 1 of Article 46 of the Constitution, as well as if Article 45, and Paragraphs 2 and 3 of Article 46 of the Law are in conformity with Paragraph 1 of Article 29 and Paragraph 2 of Article 109 of the Constitution.

II

The petitioner’s petition requesting an investigation into the compliance of the said legal norms with the Constitution is based upon the following legal arguments.

  1. It is established in Paragraph 4 of Article 1 of the Law on Commercial Banks that in their activities banks shall comply with the Republic of Lithuania’s Law Company and other legal acts, unless the Law provides otherwise, as well as with their statutes (bylaws). According to Article 2 of the Law, the bank is an enterprise functioning on the basis of share capital, whereas the share capital is the nominal value of all registered shares. It is established in Paragraph 1 of Article 32 of the Company Law that shares are the securities of investments evidencing the participation of their holders in the company’s capital and entitling them property rights and non-property rights. A shareholder of the bank shall be an individual who has acquired at least one share of the bank in accordance with the procedure established by law (Paragraph 1 of Article 14 of the Law). Thus, the share capital belongs to the company by its property right (in this case to the credit bank “Nida” which was established by close manner), and the shareholders who have acquired the shares of the bank become the owners of the bank, they have the right of property to shares. The right of property is the owner’s right to manage, utilise and dispose of his property. The owner’s rights to his property do not depend upon other persons. In Item 7 of Paragraph 1 of Article 37 of the Law it is established that the Bank of Lithuania is entitled to suspend the powers of the bank council, remove from office the board of the bank, the head of the bank administration and appoint a temporary bank administrator, and it would mean that a state institution, the Bank of Lithuania, takes over private property—the property of a commercial bank—at its command and manages it. The Bank of Lithuania has applied this sanction in regard of the governing bodies of the joint-stock credit bank “Nida”. It is also important that the bank council is formed by the general meeting of the shareholders.

After the Bank of Lithuania has taken over the property of a commercial bank at its command by and commenced the management of the said property, the shareholders-owners of the bank are deprived of the possibility of managing and utilising their property. Thereby the right to private property, as well as freedom of persons’ activity and their initiative, is restricted.

Therefore, in the opinion of the Panel of Civil Cases of the Court of Appeal of Lithuania, there exist grounds to suppose that the norm of Item 7 of Paragraph 1 of Article 37 of the Law contradicts Paragraphs 1 and 2 of Article 23, as well as Paragraph 1 of Article 46 of the Constitution.

  1. Item 7 of Paragraph 1 of Article 37 of the Law entitles the Bank of Lithuania to apply sanctions to banks, whereas the procedure and effects of their application are discussed in Articles 39 and 40 of the Law. Therefore, due to the corresponding arguments doubts arise whether Article 39, Paragraphs 1 and 2 of Article 40, and the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Article 45 of the Law correspond with Paragraphs 1 and 2 of Article 23, as well as Paragraph 1 of Article 46 of the Constitution.
  2. Article 45 of the Law provides for the subjects by a statement of whose the court shall institute bankruptcy proceedings, whereas Paragraphs 2 and 3 of Article 46 of the Law establish the actions of the court which it undertakes upon receiving a statement concerning instituting bank bankruptcy proceedings. Paragraph 1 of Article 29 of the Constitution consolidates the equality of all persons before the law, the court, and other state institutions and officers. The procedural equality of parties is consolidated in the Code of Civil Procedure (CCP). The aforementioned norms of the Law are to be interpreted from their content as being obligating. Hence it would follow that upon receiving a statement from the subject established in Article 45 of the Law the court shall pass a procedural decision in favour of the subject that brought in the action, viz., it shall institute bank bankruptcy proceedings (Article 45), on the same day appoint the bank administrator on the recommendation of the Bank of Lithuania and fix his/her remuneration (Paragraph 2 of Article 46), and pass a decision to institute bank bankruptcy proceedings within 7 days (Paragraph 3 of Article 46). Therefore, in the opinion of the petitioner, the aforesaid norms of the Law may be deemed to have violated the principle of the equality of persons before the court which is consolidated in Paragraph 1 of Article 29 of the Constitution.

Besides, in the opinion of the petitioner, there exist grounds to suppose that the aforesaid norms of the Law contradict Paragraph 2 of Article 109 of the Constitution which consolidates the independence of judges and courts while administering justice. The requirements of the obligating manner as established in the said norms impede the court and make it dependent upon the will of the subject that submits the statement concerning instituting bankruptcy proceedings. The said norms also obligate the court to estimate the conclusion about the bank’s insolvency of the Bank of Lithuania as the only and uncontested evidence to base the instituting bank bankruptcy proceedings. Thereby the court is deprived of the possibility of passing an alternative procedural decision—to refuse to institute bank bankruptcy proceedings.

III

  1. Feliksas Kolosauskas, a representative of the party concerned, the Seimas, during the preparation of the case for the Court hearing explained in writing that banks, unlike other enterprises which operate on the basis of share capital, subsist on re-lending borrowed funds (deposits and other funds subject to being returned) but not on their own funds. The property relations which appear in these activities, their development are regulated by special banking laws, and not only in Lithuania but elsewhere as well. For instance, the Bank of England, one of the oldest central banks in the world, administers the supervision of banks pursuant to the Banking Law passed in 1979, and to laws-directives of the European Economic Community (EEC). The chief aim of the supervision of the banks of Great Britain is to guarantee the safety of deposits. The following sanctions are provided for to unreliable banks in Great Britain: limitations on their activity, change of administration, amalgamation of banks, taking over their control, revocation of licence, and liquidation of the bank. Most principles of these sanctions, a little modified, are applied in most countries the world over—they are universal.

Taking this into account, and pursuant to the provisions of Paragraph 1 of Article 6, Paragraph 2 of Article 23, Article 28, and Paragraph 3 of Article 46 of the Constitution, the provisions regulating supervision of the commercial banks of Lithuania, as well as sanctions which are to be applied to non-reliable banks, were legitimised in the Law.

  1. In the opinion of the party concerned, Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, and the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Article 45 of the Law do not contradict Paragraphs 1 and 2 of Article 23, and Paragraph 1 of Article 46 of the Constitution. In his explanation he presented the following legal arguments.

2.1. Since upon executing actions provided in the aforementioned articles of the Law (suspending the powers of the bank council, removing from office the board of the bank and the head of the bank administration, as well as appointing a temporary bank administrator, following a statement of the bank insolvency seeking instituting bank bankruptcy proceedings by the court), the property rights of the owners—shareholders—of the bank remain the same, the execution (accomplishment) of such actions cannot be estimated as infringement upon their property.

2.2. The essence of banking activity is re-lending of borrowed money. Therefore, it is of crucial importance to secure the balance between the commitments of the bank to its creditors and the commitments of the bank debtors to the bank. If the council of the bank, its board and administration for some reasons are not able to balance the commitments to the bank with the commitments of the bank to its creditors, and if the risk level of the bank activity is too high, then in case of the bank’s bankruptcy the creditors of the bank suffer the greatest losses. Therefore, certain provisions of the Law entitle the Bank of Lithuania, as the institution of supervision, to apply or initiate sanctions, so that the shareholders-owners of the bank, when managing, utilising and disposing of their property, might not violate the property of other persons, and might not infringe upon the inviolability of property. The strictest sanctions are applied in case when it is established that the bank is insolvent, i.e., when cash assets of the bank become lower than the commitments to the other owners.

2.3. The aforementioned articles and their paragraphs of the Law do not contradict Paragraphs 1 and 2 of Article 23, as well as Paragraph 1 of Article 46 of the Constitution, also for the reason that it is established in Article 28 of the Constitution that “while exercising their rights and freedoms, persons must observe the Constitution and the laws of the Republic of Lithuania, and must not restrict the rights and interests of other people”. The sanctions for unreliable banks, as legalised in the Law, just exactly co-ordinate and consolidate the provisions of Paragraphs 1 and 2 of Article 23, Article 28, and Paragraph 3 of Article 46 of the Constitution. The Bank of Lithuania, on the grounds of the rights granted to it by the Law to apply sanctions to banks, has an opportunity to ensure the inviolability of the bank creditors’ property, as well as legal protection of property.

2.4. It is impossible to treat unreservedly the provision declared in Paragraph 1 of Article 46 of the Constitution that Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative. The limits of this freedom and initiative are established in Article 28 of the Constitution. Therefore, the established limitations on the managing, utilising, and disposing of the property of bank’s shareholders-owners are reasonable when ensuring the inviolability of the property of other persons. The Constitutional Court’s Ruling “On the Compliance of the Second Paragraph of Article 148 of the Criminal Code of the Republic of Lithuania as well as Items 1 and 2 of Article 93 of the Code of the Criminal Procedure of the Republic of Lithuania with the Constitution of the Republic of Lithuania” of 13 December 1993 contains a similar provision stipulating that neither Constitution nor valid system of other laws, nor universally recognised norms of international law deny the opportunity to alienate the property or limit its management, utilisation or disposal under conditions and procedure prescribed by law.

2.5. The ensuring of the inviolability of property, as well as other constitutional guaranties and compliance of laws with them, may not be interpreted outside the whole text of the Constitution because it is provided in Paragraph 1 of Article 6 of the Constitution that the Constitution shall be an integral and directly applicable statute.

On the grounds of the presented arguments the representative of the party concerned pointed out that the impugned norms of the Law are in conformity with Paragraphs 1 and 2 of Article 23, and Paragraph 1 of Article 46 of the Constitution, they ensure the implementation of the said constitutional norms, as well as that of the norm of Article 28 of the Constitution.

  1. In the opinion of the representative of the party concerned, Article 45, Paragraphs 2 and 3 of Article 46 of the Law on Commercial Banks are in compliance with Paragraph 1 of Article 29 of the Constitution.

These impugned norms of the Law create conditions for protecting the inviolability of other persons’ property when the shareholders-owners of the bank by inappropriately managing, using and disposing of their as well as borrowed property bring about an actual danger to impede property rights of other persons—creditors—and to violate Paragraph 1 of Article 23 and Article 28 of the Constitution. Therefore, the norms of the Law whereby it is sought to protect the inviolability of the property of other persons—creditors—ensure the provision consolidated in Paragraph 1 of Article 29 of the Constitution which stipulates that all persons shall be equal before the law, the court, and other State institutions and officers, and never violate it.

  1. Article 45 and Paragraphs 2 and 3 of Article 46 of the Law are in conformity with Paragraph 2 of Article 109 of the Constitution as these norms do not violate the independence of judges and courts when they administer justice. It is impossible to interpret the aforesaid articles of the Law as obligating, they do not make the court dependent on the will of the subject who submitted a statement to institute bankruptcy proceedings and they do not obligate the court to assess the conclusion of the Bank of Lithuania regarding the insolvency of the bank to be the only and incontestable legal fact to ground the instituting of bankruptcy proceedings.

In the opinion of the representative of the party concerned, the court, upon receiving a statement regarding instituting bank bankruptcy proceedings of the subjects enumerated in Article 45 of the Law, and when there is a conclusion of the Bank of Lithuania concerning the insolvency of the bank, has, by taking advantage of the opportunities granted it by law, to assess the validity of the conclusion submitted by the Bank of Lithuania, and only afterwards to pass the decision to institute bank bankruptcy proceedings. This is provided for in Paragraph 2 of Article 121 of the CCP where it is established that the statement regarding instituting bank bankruptcy proceedings must be investigated in the court of first instance no later than within 7 days from the day of reception of the statement. Paragraph 3 of Article 46 of the Law provides for 7 days’ time limit to institute bank bankruptcy proceedings, too.

The representative of the party concerned in his explanation noted that, in his opinion, when deciding if the court ruling to institute bankruptcy proceedings to the bank “Nida” is in conformity with laws, Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40 of the Law were not to be applied. Therefore, the Constitutional Court ought not to investigate the question of the compliance of the said norms with the Constitution.

In the process of judicial investigation the representatives of the party concerned confirmed the arguments set forth in the aforementioned explanation. In their opinion, the impugned norms of the Law do not contradict the Constitution.

Gintaras Kukauskas, a representative of the party concerned, explained in addition that Articles 45 and 46 do not provide that the court must institute bankruptcy proceedings. These articles merely enumerate the subjects entitled to submit their statements, as well as the content of the said statements. The requirement to appoint the bank administrator on the day of reception of the statement is conditioned by the necessity to protect the bank’s, as well as the creditors’ property. In the opinion of the representative of the Seimas, the wording of the aforementioned articles of the Law may be contradicting the CCP, but this is not the case regarding the Constitution. The statement of the bank’s insolvency by the Bank of Lithuania is indispensable whereby it is sought to prevent a purposely instituting bank bankruptcy proceedings following the statement of the shareholders. The representative of the Seimas noted that insolvency is defined in the Law differently than in the Law on Enterprise Bankruptcy. The board of the Bank of Lithuania establishes the criteria of insolvency by its decision.

The Constitutional Court

holds that:

According to Paragraph 2 of Article 110 of the Constitution and Paragraph 1 of Article 67 of the Law on the Constitutional Court, in cases when there are grounds to believe that the law or other legal act applicable in a certain case contradicts the Constitution, the judge shall suspend the investigation and shall appeal to the Constitutional Court to decide whether the law or other legal act in question complies with the Constitution.

The Panel of Civil Cases of the Court of Appeal of Lithuania, the petitioner, requests the Constitutional Court to investigate whether Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Paragraph 1 of Article 45 of the Law are in compliance with Paragraphs 1 and 2 of Article 23, and Paragraph 1 of Article 46 of the Constitution, as well as if Article 45, Paragraphs 2 and 3 of Article 46 of the said Law are in conformity with Paragraph 1 of Article 29, and Paragraph 2 of Article 109 of the Constitution.

In the opinion of the representative of the party concerned, the norms of Articles 37, 39 and 40 of the Law should not be applied while investigating a civil case in the Court of Appeal of Lithuania, therefore, the Constitutional Court ought not to investigate the question of their compliance with the Constitution.

The Constitutional Court notes that it shall not decide what legal or juridical norms the court should apply in a particular case. This is a prerogative of the court which investigates the case. The 4 October 1995 ruling of the Panel of Civil Cases of the Court of Appeal of Lithuania has been adopted pursuant to Paragraph 2 of Article 110 of the Constitution, and Paragraph 1 of Article 67 of the Law on Constitutional Court, this request is grounded with legal arguments, therefore, the question of constitutionality of the norms of the Law as indicated by the petitioner is to be investigated in these proceedings of the Constitutional Court.

  1. On the compliance of Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Article 45 of the Law on Commercial Banks with Paragraphs 1 and 2 of Article 23, and Paragraph 1 of Article 46 of the Constitution.

1.1. It is consolidated in Paragraph 1 of Article 23 of the Constitution: “Property shall be inviolable.” This is a provision of the Chapter “The Human Being and the State” of the Constitution, wherein the main human rights and freedoms are consolidated. In this provision the constitutional principle of the inviolability of private property is formulated. In its ruling of 13 December 1993, the Constitutional Court held that “the inviolability of property means, on the one hand, the right of the owner as the possessor of subjective rights to property, to require that other persons not violate his own rights as well as the duty of the state, on the other hand, to defend and protect property against illegal encroaching upon it” (Official Gazette Valstybės žinios, 1993, No. 70-1320).

It is established in Paragraph 2 of Article 23 of the Constitution that “The rights of ownership shall be protected by law.” This provision stipulating that subjective property rights are regulated and protected by law consolidates the basic rule of the institute of property law. In the case in question the arguments which the Constitutional Court indicated when interpreting Paragraph 2 of Article 23 of the Constitution in its said 13 December 1993 ruling are important: “<...> as far as the theory of law is concerned, the protection of property rights by legal means presuppose, in turn, appropriate limits to such protection, as law in all cases of the regulation of public relations is valid only within certain limits.” Thus, the subjective property right is an element of the absolute legal relation where the owner is opposed to all other persons who must abstain from violating this law. On the other hand, the owner, when exercising his property rights, is not entirely free. It is established in Article 28 of the Constitution: “While exercising their rights and freedoms, persons must observe the Constitution and the laws of the Republic of Lithuania, and must not restrict the rights and interests of other people.” Therefore, the subjective property right may be defined as the law-protected opportunity of the owner to manage the possessions which belong to him, to utilise and dispose of them at his discretion and in his interests, not overstepping, however, the limits imposed by law, and not restricting the rights and freedoms of other persons.

It should be noted that the doctrine of human rights along with the democratic states’ law which bases itself on it recognises certain opportunity to limit the property rights, as well as some other basic human rights. But here the essential provision is followed that the fundamentals of the content of any basic human right may not be violated by means of the limitations. If such a right were limited to the extent that reasonable limits would be exceeded, or its legal protection would not be ensured, in that case there would be grounds to assert that the fundamentals themselves of such a right are violated, and that would be equivalent to the denial of this right.

Article 17 of the Convention for the Protection of Human Rights and Fundamental Freedoms contains such a fundamental prohibition: “Nothing in this Convention may be interpreted as implying for any State, group or person any right to engage in any activity or perform any act aimed at the destruction of any of the rights and freedoms set forth herein or at their limitation to a greater extent than is provided for in the Convention.”

Article 1 of the First Protocol of the Convention is devoted to the protection of property. This article prescribes:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

It is pointed out in the review of practical application of the Convention by the European Commission of Human Rights and the European Court of Human Rights: Paragraph 2 of Article 1 of the First Protocol establishes that the laws which the State deems necessary to control the use of property in accordance with the general interest do not violate the said Article of the Convention. In the aforementioned provision of Article 1 a well-known legal principle is expressed which is recognised by every State of the Convention: the legislature is entitled to establish rules limiting the opportunities of property owners in the general interest. Of course, such rules are much varied. The Court controls the measures adopted by the States under the rule of proportionality (The European System for the Protection of Human Rights/ R. St. J. Macdonald, F. Matcher, H. Petzold (Eds.) 1993, p. 526).

Thus, in summary, we can assert that the protection of private property as established in the Constitution agrees in essence with the international understanding of protection of the right to property.

1.2. The right to property is closely connected with freedom of a person which is proclaimed in the Constitution because the main function of the right to property is to give its possessor corresponding freedom in the field of economy, too.

The provision “Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative” of Paragraph 1 of Article 46 of the Constitution expresses the constitutional principle defining the economic basis of the country. Freedom of economic activity means the right to possess property, the right to freely choose occupation and business, as well as dwelling place. Freedom of economic activity is freedom of contracts, freedom of fair competition, equal rights of entities of economic activity. In other words, freedom of individual economic activity and initiative is the whole complex of legal opportunities which creates preconditions for a person to adopt decisions necessary for his economic activity by himself.

Freedom of economic activity is not limitless. It is reckoned to be one of the public rights when implementing them public interests are affected, therefore, they are regulated more than individual freedoms. From the point of view of liberal doctrines, the sphere of decisions regarding economic sphere adopted by the state institutions must be minimal. The practice and law of contemporary democratic states ground themselves in essence on the fact that the state may not arbitrarily (e.g., by violating the principle of equality) and without limitations restrict freedom of economic activity.

Paragraph 1 of Article 46 of the Constitution establishes the principle of freedom of individual economic activity and initiative for implementation of which other paragraphs of the same article are devoted. When assessing the impugned norms of the Law, one ought to pay attention to Paragraph 3 of Article 46 of the Constitution wherein it is established that the State shall regulate economic activity so that it serves the general welfare of the nation.

1.3. While judging if the impugned norms are in compliance with the principles of protection of private property, as well with those of individual economic activity and initiative as consolidated in the Constitution, it is necessary to emphasise a common feature of legal regulation of property relations—the differentiation that is conditioned by the growing intensity of economic life, accumulation of capital, and other factors. Due to the differentiated regulation of property relations (taking into consideration the peculiarities of the field of regulated property relations, the nature, function of possessions, their specific purpose, and different situation of entities), there appear types of property law—industrial law, commercial law, financial law—which have less and less features of classical civil law.

Banking under the conditions of market economy is, first of all, the economic activity in a specific field of the capital on loan. The accumulation, circulation, distribution of funds in banks are performed partly in accordance with general norms of civil law, but owing to peculiarities of bank’s activity special legal regulation is necessary, too. For such a purpose the Law on Commercial Banks is passed in Article 1 whereof it is established that in their activities banks shall comply with the Company Law and other legal acts, unless this Law provides otherwise, as well as with their statutes (bylaws). According to the Law, the bank is an enterprise functioning on the basis of share capital, whereas the share capital—the nominal value of all registered shares (Article 2).

The funds acquired for shares are received by a joint-stock enterprise (by a bank in the case in question) for the utilisation, disposal and management. After certain shares have been acquired, the shareholders’ former property right disintegrates: on its basis there emerge property rights and non-property rights of the shareholder: to get a portion of the profit of the enterprise (dividends), a portion of the possessions of the enterprise undergoing liquidation, to transfer shares at the disposal of other persons, to take part in the management bodies of the enterprise, etc. The shareholders’ property right is peculiar in that the object of the property right is not a material one, it is the rights and duties provided for in laws and the statute (bylaw) of the enterprise. Meanwhile the main property right of the enterprise, thus, that of the bank too, is the property right to material possessions registered as share capital.

The co-ordinated shareholders’ will regarding management, utilisation and disposal of the possessions is implemented through the joint-stock company (the bank). The managing bodies of the bank shall be comprised of the shareholders’ meeting, the council and the board of the bank, and the head of the bank administration (Article 16 of the Law). In their relation with the third party, including the state, these bodies represent the economic entity—the bank—which possesses the rights of legal person, and they express the will of the legal person. The argument of the petitioner that after applying the impugned norms of the Law “the shareholders-owners of the bank are deprived of the possibility of managing and utilising their property”, does not quite correspond the aforesaid provisions of a general character of share law. In this case the Law speaks about the sanctions for the legal person, i.e., the bank, as well as about the restrictions of the property rights’ implementation of the bank, but not about the sanctions for the shareholders.

Shareholders’ private ownership right to shares, as well as the bank’s ownership right to its possessions, is protected by Article 23 of the Constitution. The protection of property rights, however, may be differently regulated in laws when taking account of different situation of subjects of property rights in view of the pursuit of their ends. The activity of a bank as an economic entity is of an exceptional character. The bank is an enterprise functioning on the basis of share capital which accepts deposits and other repayable funds and/or gives loans, and assumes all the risks and responsibility related thereto, and engages in other activities specified by this Law. Thus, the financial basis of a bank’s economic activity is of a two-fold character: share capital and borrowed funds. It should be noted that the borrowed funds exceed significantly the share capital. As the essence of the banks’ activity is the re-lending of borrowed money, it is important to ensure the balance of the commitments of the bank for its creditors, and those of the debtors for the bank. If the bank’s council, its board, administration for certain reasons did not balance the commitments for the bank with those of the bank for its creditors, and if the degree of the risk of bank’s activity became too high, in the case of the bankruptcy and liquidation of the bank the depositors and other creditors, as well as the shareholders would suffer losses.

Article 1 of the Law defines the purpose of the Law which is to regulate the activities of commercial banks in order to assure the stable, reliable, efficient and safe functioning of banks, and such a purpose conditions corresponding supervision of banks’ activities. In modern democratic states, as a rule, the state bank, or sometimes a specially formed state institution, is commissioned to supervise functions of banks’ activities.

It is established in Article 125 of the Constitution:

“In the Republic of Lithuania, the central bank shall be the Bank of Lithuania, which is owned by the State. <...>

The procedures for the organisation and activities of the Bank of Lithuania as well as its powers shall be established by law.”

According to Item 10 of Article 8 of the Law on the Bank of Lithuania, the Bank of Lithuania shall issue and revoke licenses of the banks of the Republic of Lithuania and foreign banks, as well as other credit institutions in the Republic of Lithuania and supervise their activities. This obligation of the Bank of Lithuania is derived from its principal objective—to achieve stability of currency of the Republic of Lithuania, and while implementing it the Bank of Lithuania must ensure the reliable functioning of the currency market and the system of credit and settlements (Article 7 of the Law on the Bank of Lithuania). A form of banks’ supervision, among others, is the application of sanctions by the Bank of Lithuania to banks and other credit institutions which violate the laws and other legal acts passed by the Bank of Lithuania, or when their chosen risky manner of activities may cause instability in the financial system or affect the interests of clients and depositors, or when by their activities they are seeking to monopolise certain spheres of the financial system of the Republic of Lithuania (Item 4 of Paragraph 1 of Article 36 of the Law on the Bank of Lithuania).

1.4. The application of sanctions to banks is regulated in the Chapter “Sanctions” of the Law on Commercial Banks. The petitioner doubts whether Item 7 of Paragraph 1 of Article 37, Article 39, as well as Paragraphs 1 and 2 of Article 40 of this Chapter, are in compliance with the Constitution.

Item 7 of Paragraph 1 of Article 37 of the Law provides: “The Bank of Lithuania seeking to protect the interests of depositors, and to assure the safety, trustworthiness and stability of the bank and banking system shall have the right to apply to banks the following sanctions: <...> to suspend the powers of the bank council, remove from office the board of the bank, the head of the bank administration and appoint a temporary administrator of the bank.”

Article 39 of the Law prescribes that the powers of the bank council shall be suspended, the bank board and the head of the administration shall be removed, and a temporary administrator shall be appointed if trustworthiness and stability of the bank are threatened but there is a real possibility of the remedy of the situation upon suspending the powers of the bank council, removing the bank board and the head of administration. The temporary administrator shall be appointed for a period of up to one year.

The legal status of the temporary administrator is defined in Paragraphs 1 and 2 of Article 40 of the Law: “The temporary administrator is a manager of the bank appointed by the Bank of Lithuania for the term of the suspension of powers of the bank council and removal of the bank board and head of the administration. From the day of the appointment of the temporary administrator all the powers of the council, the board and the head of the administration shall be passed to the temporary administrator and all decisions of the above bodies passed after the appointment shall be illegal and unenforceable.”

The doubt of the petitioner regarding the conformity of the aforesaid norms of the Law to Paragraphs 1 and 2 of Article 23, as well as Paragraph 1 of Article 46 of the Constitution, is based on such a general legal argument: “Upon taking over the property of a commercial bank at its command by the Bank of Lithuania and commencing the management of the said property, the shareholders-owners of the bank are deprived of the possibility of managing and utilising their property. Thereby the right to private property, as well as freedom of persons’ activity and their initiative, is restricted.”

It should be noted that the impugned norms of the Law do not establish the right of the Bank of Lithuania to take over the property of a commercial bank at its command and to manage it. Upon application of the sanction provided for in Item 7 of Paragraph 1 of Article 37 of the Law, the bank further functions as and an independent economic entity, the legal status of its property does not change, the shareholders’ property rights to shares persist. However, the suspension of the activities of the bank bodies and the transfer of the bank’s management to the temporary administrator is limitation on the rights of legal person (the bank) to manage the property which belongs to it, as well as restraint of freedom of economic activity and initiative. When judging if all this corresponds the provisions of Articles 23 and 46 of the Constitution as pointed out by the petitioner, the objective which is sought should be assessed according to the aforementioned requirement of proportionality, and if this sanction meets the objective.

The judgement in this case is to be linked with Article 28 of the Constitution wherein it is established: ”While exercising their rights and freedoms, persons must observe the Constitution and the laws of the Republic of Lithuania, and must not restrict the rights and interests of other people.” Legal persons also have a constitutional obligation to observe the Constitution and laws, as well as not to restrict the rights and interests of other people.

Although it would be incorrect to assert that the state (its institutions, officers) never violates human rights, but it is the state that guarantees and protects human rights, it is the state that bears most of the responsibility to protect human rights and create appropriate conditions for implementing the said rights. The state performs its function to protect human rights in varied manner. The conclusion should be made on the basis of the content of Article 28 of the Constitution that to persons who when exercising their rights and freedoms do not observe the Constitution and the laws, and restrict the rights and freedoms of other persons, corresponding sanctions may be applied, among them the limitations on their property rights and restrictions of their economic activity and initiative.

In Paragraph 1 of Article 38 of the Law it is prescribed that the Bank of Lithuania shall apply the sanctions if at least one of the following conditions is present:

“1) furnishing of incorrect information to the Bank of Lithuania;

2) failure to provide the Bank of Lithuania with required information or documents which are necessary for banking supervision;

3) non-compliance with the established standards; and

4) violation of any laws or legal acts of the Republic of Lithuania.”

In addition, the sanction—a temporary suspension the powers of the bank council, removal from office the board of the bank and the head of the bank administration—provided for by Item 7 of Paragraph 1 of Article 37 of the Law may be applied only under the conditions established by Article 39: first, it must be held that trustworthiness and stability of the bank are threatened; second, the appearance of such a situation is linked with the activities of the existing management bodies of the bank; third, there exists a real possibility of the remedy of the situation upon suspending the powers of the bank council, removing the bank board and the head of the administration, and appointing a temporary administrator.

Thus, the possibility of the application of sanctions for the bank is linked in the Law with violations of law committed by the management bodies of the bank, to non-performance of the requirements regarding economic activities. At the same time it should be noted that the main objective of the sanction—suspension of the activities of the management bodies of the bank—which is regulated by the impugned norms of the Law is a preventive one: if there appears threat to trustworthiness and stability of the bank, thereby it is attempted to protect the interests of depositors, to assure the safety, trustworthiness and stability of the bank and banking system. The bank, while disposing of the funds of others, assumes corresponding risks and responsibilities, its share capital is the guarantor of the protection of the borrowed capital. By the said sanction it is also sought to preserve the bank’s assets and to improve its functioning.

The impugned Paragraphs 1 and 2 of Article 40 of the Law define the rights and the obligations of the temporary administrator. In Article 39 the aim of the administrator’s appointment is formulated, and the powers which the temporary administrator is granted by Article 40 of the Law oblige him to act in the interests of the bank.

It should be noted that according to Article 40 of the Law the temporary administrator may not without the authorisation or agreement of the shareholders’ meeting sell or otherwise transfer, mortgage the bank’s real estate, reorganise or liquidate the bank save for the cases provided for in Paragraph 7 of Article 34, as well as to decide other questions which are within the competence of the shareholders’ meeting. The temporary administrator must inform the Bank of Lithuania and the shareholders’ meeting of the developments and results of administration within the terms set by them and according to the established procedure. The temporary administrator shall be liable in accordance with the procedure established by means of laws of the Republic of Lithuania for the damage inflicted on the bank through his fault.

Paragraph 3 of Article 37 of the Law and Paragraph 2 of Article 37 of the Law on the Bank of Lithuania consolidate the right to appeal against the validity of the Bank of Lithuania’s resolution concerning the application of sanctions against the bank in court.

The liability of the temporary administrator provided for in the law, as well as the possibility of appeal against the validity of the Bank of Lithuania’s resolution, is a significant guaranty of the protection of the property rights of the party concerned.

The whole complex of the arguments set forth allows drawing the conclusion that the impugned norms of the Law regulating the application of the sanction indicated in Item 7 of Paragraph 1 of Article 37, and defining the status of the temporary administrator comply with Paragraphs 1 and 2 of Article 23, as well as Paragraph 1 of Article 46 of the Constitution.

1.5. Article 45 of the Law stipulates: “The court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania as well as in accordance with the resolution of the shareholders’ meeting or the statement of the creditors, provided only there is a conclusion of the Bank of Lithuania concerning the bank insolvency.”

The petitioner doubts if the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of the article is in conformity with the principle of the protection of the property, freedom of persons’ economic activity and initiative which is established in the Constitution. In the opinion of the petitioner, “this provision entitles the Bank of Lithuania to insist upon bankruptcy proceedings to be instituted against a commercial bank, i.e., to seek to influence the activity of the private capital enterprise”.

When judging the compliance of the impugned norm with the Constitution it should be noted that the right to institute bank bankruptcy proceedings is linked with existence of a conclusion of the Bank of Lithuania concerning the bank insolvency. In very general terms insolvency may be defined as a situation when the property owner is not capable of covering his debts after dues have fallen, i.e., the bank’s possessions (property) become smaller than it is required to repay debts and there appears threat to the property of depositors and other creditors. The bank, as well as the creditors, is concerned to look for ways out of the situation unfavourable for both parties. For this purpose the bankruptcy procedure—the appointment of the bank administrator, the reorganisation or rehabilitation of the bank in order to avoid its bankruptcy, as well as the liquidation of the bank—may be used (Article 44 of the Law).

According to Article 45 of the Law, the Bank of Lithuania, the shareholders’ meeting, creditors are entitled to initiate the institution of the bank bankruptcy procedures in the court. Thus, it is impossible to draw the conclusion on the basis of this article that to do this is an exclusive right of the Bank of Lithuania. In the impugned provision of the Law, one way—a concrete manifestation of banking supervision, i.e., the right to submit to the court a statement regarding a bank’s insolvency—to accomplish tasks raised to the Bank of Lithuania is consolidated. This right of the Bank of Lithuania is based upon the responsibility for its supervised field of economic activity. The right to represent the interests of the bank’s creditors when initiating bankruptcy proceedings of the bank which fails to perform its commitments is justified by the necessity to safeguard and protect property rights of these persons the number of whose, as a rule, is great (Article 23 of the Constitution).

The provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Article 45 of the Law signifies the right of the Bank of Lithuania—one of the three subjects which are provided for in the Law—to submit to the court a statement regarding the institution of the bank bankruptcy proceedings. Institution of civil proceedings when the statement corresponds the CCP requirements (in the case in question—the conditions established in Article 45 of the Law) is the obligation of the court, and not only its right. It should be noted that in the said article of the Law the foreseen institution of bankruptcy proceedings in accordance with the resolution of the shareholders’ meeting or the statement of the creditors might cause just the same procedural and material effect.

On the basis of the arguments set forth the conclusion should be made that the provision “the court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania” of Article 45 of the Law is in compliance with Paragraphs 1 and 2 of Article 23, and Paragraph 1 of Article 46 of the Constitution.

  1. On the compliance of Article 45, Paragraphs 2 and 3 of Article 46 of the Law on Commercial Banks with Paragraph 1 of Article 29, and Paragraph 2 of Article 109 of the Constitution.

2.1. It is established in Paragraph 1 of Article 29 of the Constitution: “All persons shall be equal before the law, the court, and other State institutions and officers.”

The principle of equality of all persons before the law is the basis of democratic society. The constitutional provision “all persons shall be equal before the law” requires that basic rights and freedoms for every person equally with others and with no exceptions should be consolidated in the legal system of the country. In this provision the formal equality of all persons is proclaimed. The Constitutional Court in its 28 February 1996 ruling held “<...> in itself, the constitutional principle of the equality of persons does not deny the fact that the law may establish different legal regulation concerning certain categories of persons who are in different situations. This should also be applied to legal persons, and not only to natural persons <...>” (Official Gazette Valstybės žinios, 1996, No. 25-630).

The provision “all persons shall be equal before the court” of the principle of the equality of all persons consolidated in Paragraph 1 of Article 29 of the Constitution is a constituent part of this principle. In a democratic state, the court is the main institutional guarantee of human rights and freedoms. Paragraph 1 of Article 30 of the Constitution stipulates: “Any person whose constitutional rights and freedoms are violated shall have the right to appeal to court.” This is the principle of priority and universality of constitutional legal protection the effectiveness of which is directly linked with the constitutional principle “all persons shall be equal before the court”.

The courts administer justice, i.e., they judge legal conflicts by adopting legal decisions. Justice is administered by applying special procedural forms the purpose of which is to assure person’s rights in judicial procedure, to facilitate to reveal the actual circumstances of the case, and to pass the right decision. According to Paragraph 2 of Article 1 of the CCP, “cases concerning disputes arising out of <...> bankruptcy legal relations”, shall be investigated by the process established by means of laws of civil procedure. The principle of persons’ equality before the court manifests itself in the process of civil procedure as the principle of the procedural equality of parties. As it is stipulated in Paragraph 1 of Article 35 of the CCP: “Procedural equality of parties shall be equal.” The dispute of equal parties in the procedure, where each party of the proceedings enjoys all possibilities during judicial investigation, expresses the essence of the civil procedure.

The parties, as well as other persons taking part in the case (the third party, its representatives, etc.), by taking advantage of the procedural rights seek to achieve that the court passed the decision which meets their interests. Depending on the procedural situation, persons taking part in the proceedings have certain rights and obligations which are characteristic only of them. Procedural rights and obligations of persons taking part in the proceedings are somewhat differently regulated in particular, viz., action, administrative, special civil legal proceedings (Paragraph 4 of Article 35 of the CCP).

The judicial procedure of civil proceedings, thus, as well as the procedural rights of persons participating in the proceedings, along with the CCP, are established by means of other laws as well, including the Law on Commercial Banks, the constitutionality of the impugned norms whereof is investigated in the case at issue.

2.2. Paragraphs 2 and 3 of Article 109 of the Constitution stipulate:

“While administering justice, judges and courts shall be independent.

While investigating cases, judges shall obey only the law.”

Judicial independence is based upon the principle of the separation of powers. In the democratic state the role of the judicial power is that courts when judging legal conflicts ensure the implementation of law expressed in the Constitution, in laws, and other legal acts that do not contradict the former and the latter. The independence of judges and courts when they administer justice is their independence from the institutions of state power and government, state officers, political parties and public organisations, individual citizens and, it goes without saying, from direct and indirect influence of the persons taking part in the proceedings (the notion of the principle of judicial independence was investigated by the Constitutional Court in its ruling of 6 December 1995 (Official Gazette Valstybės žinios, 1995, No. 101-2264)).

According to the doctrine of human rights, judicial independence in a democratic society is regarded as significant guarantee of human rights and freedoms. This is consolidated in many international documents. For instance, Article 6 (1) of the Convention for the Protection of Human Rights and Fundamental Freedoms reads: “In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.” These are general provisions applied for both civil and criminal proceedings.

2.3. In Paragraph 2 of Article 44 of the Law it is established that unless this Law establishes otherwise, the Enterprise Bankruptcy Law shall apply to banks, and in Paragraph 3 of the said Article it is prescribed that bank bankruptcy procedure shall be investigated exclusively in court as distinguished from the judicial and extrajudicial bankruptcy procedure provided for in the Enterprise Bankruptcy Law. The Chapter “Procedure for Instituting Bankruptcy Proceedings against Banks and Court Investigation of Cases” of the Law determines the institution of such type of civil proceedings and peculiarities of their investigation.

It is stipulated in Article 45 entitled “Conditions of Instituting Bank Bankruptcy Proceedings” of the Law: The court shall institute bank bankruptcy proceedings following a statement of the bank’s insolvency by the Bank of Lithuania as well as in accordance with the resolution of the shareholders’ meeting or the statement of creditors, provided only there is a conclusion of the Bank of Lithuania concerning the bank insolvency.”

It is also established in the impugned Paragraphs 2 and 3 of Article 46 entitled “Instituting Bankruptcy Proceedings in Court”:

“Upon receiving a statement which conforms with the conditions set forth in Article 45, the court shall that same day appoint the bank administrator on the recommendation of the Bank of Lithuania and fix his/her remuneration.

The court shall pass a decision to institute bankruptcy proceedings within 7 days and must:

1) notify the known creditors, the bank’s correspondent banks and the manager of the register of the initiation of bankruptcy proceedings as well as make a public announcement thereof indicating: the court in which the proceedings are to be held and the case number; the requisites of the bank which is going bankrupt; time period during which creditors’ claims will be accepted;

2) suspend other court proceedings instituted against the bank and inform other courts, where proceedings against the bank have been instituted, of the existence of bankruptcy proceedings so as to have all other legal actions against the bank suspended.”

The petitioner points out that pursuant to these norms of the obligating manner the courts must pass “a procedural decision in favour of the subject that brought in the action”, i.e., upon receiving a statement, to institute bank bankruptcy proceedings, to appoint the bank administrator on the recommendation of the Bank of Lithuania, to perform other mandatory actions. Therefore, the petitioner concedes, the said norms violate the equality before the court principle of the persons participating in the proceedings.

While judging the conformity of the impugned norms of the Law with the principle of the equality of all persons before the court which is consolidated in Article 29 of the Constitution, an account should be taken of the following legal aspects of this question: the nature of bank bankruptcy proceedings, and the peculiarities of investigation of civil proceedings of this type.

After the bank has become insolvent, i.e., under the situation when the bank has less possessions than it is necessary to settle accounts according to its commitments, the property rights of depositors and other creditors are violated. As insolvency essentially signifies the loss of the bank’s property, property rights of shareholders are affected as well. However, when there exists bank’s insolvency, the interests and the opinion of creditors and shareholders concerning possible solutions may differ. According to the impugned Article 45 of the Law, when there is a conclusion of the Bank of Lithuania concerning the commercial bank insolvency, both parties are entitled on their own accord to appeal to the court requesting the institution of bank bankruptcy proceedings so that thereby their violated rights were protected. The Bank of Lithuania which is obligated by law to ensure the reliable functioning of the currency market and the system of credit and settlements, is also entitled to submit a statement to the court regarding the bank insolvency. It should be noted that the right of the state institution which supervises banking to immediately apply sanctions to the insolvent bank so that its depositors were protected and the remaining assets were preserved, is essentially not contested in bankruptcy law of foreign countries because after the failure of a private bank state interests are affected, and not only those of a limited private sphere.

The right of persons to apply to the court is implemented by the procedure established by the CCP and other laws. If a person enjoys a subjective procedural right to appeal to the court and has correspondingly accomplished it, the norms of the CCP do not provide for an opportunity to reject his application. The acceptance of the application, as a procedural act, at the command of the court means institution of civil proceedings in court (Article 5 of the CCP).

Institution of bank bankruptcy proceedings in court is regulated in the Law on Commercial Banks taking account of peculiarities of such types of civil proceedings. According to the theory of law, when there exists a competition between general procedural norms, i.e., those of the CCP, and special procedural norms, i.e., those of the Law on Commercial Banks, the latter shall be applied. In impugned Article 45 of the Law supplementary conditions (as a matter of fact, different from those laid down in the Enterprise Bankruptcy Law) concerning instituting bank bankruptcy proceedings in court: 1) only the subjects enumerated in this article are entitled to submit a statement (the will of the shareholders must be declared in a resolution of shareholders’ meeting pursuant to the prescribed procedure and manner); 2) there must be a conclusion of the Bank of Lithuania concerning the bank insolvency. In this norm of the Law essentially the same conditions for initiating bank bankruptcy proceedings are established for the enumerated subjects. In this case a general rule of civil procedure is valid: when there exist conditions as indicated in the Law, the proceedings shall be initiated.

The institution of bank bankruptcy proceedings in a court following the statement of a person who enjoys the corresponding subjective right means the implementation of a person’s right to appeal to court as consolidated in Paragraph 1 of Article 30 of the Constitution. The norms of the Law which consolidate this right do not violate the principle of the equality of all persons before the court. After bank bankruptcy proceedings following a statement of one of the subjects indicated in the Law have been instituted, other persons who have legitimate property interests take part in the investigation of such civil proceedings, i.e., they take part in the bank bankruptcy procedure which is investigated by legal manner. Every person taking part in the proceedings has the rights and obligations which are determined by the CCP and which correspond his procedural status, as well as the rights characteristic of judicial bank bankruptcy procedure provided for by the Law. Therefore, the statement of the petitioner that instituting bank bankruptcy proceedings is “a procedural decision in favour of the subject that brought in the action” is not a grounded one.

When speaking about peculiarities of instituting bank bankruptcy proceedings in court, the point of view of the European Commission of Human Rights set forth in its 10 March 1981 decision regarding the admissibility of the application should be mentioned. The applicant X on the grounds of Article 6 (1) of the Convention for the Protection of Human Rights and Fundamental Freedoms, alleged violation of his right of defence in court by the Antwerp Commercial Court which adjudicated him bankrupt. In the said decision of the Commission it was held that the court which adjudicated the applicant bankrupt ex officio was acting pursuant to a legal act constituting an exception from the ordinary procedure. It is impossible to assert that this court “was establishing” new rights and obligations. Its function was not to solve a dispute but to protect existing and potential creditors. In the opinion of the Commission, Article 6 (1) of the Convention is not applicable to urgent proceedings which lead to the adjudication of bankruptcy. It is noted in the decision of the Commission that, on the other hand, the said initial decision of the Antwerp Commercial Court affected the applicant’s rights, therefore, it could itself be disputed and its legality challenged before a tribunal offering all the guarantees mentioned in Article 6 (1) of the Convention. The applicant X was able to form an objection which was subsequently investigated in court by following a procedure that complied in every respect with Article 6 (1) of the Convention (European Commission of Human Rights. Commission Européene des Droits de L’Homme. Decisions and reports. Décisions et rapports. No. 24, p. 198).

The measures provided for in the impugned Paragraphs 2 and 3 of Article 46 of the Law (appointment of the administrator, notification of the creditors, the manager of the register of the initiation of bankruptcy proceedings, etc.) are aimed to protect the property rights of the depositors and those of other persons concerned. Therefore, these norms of the Law may not be judged to be in conflict with the principle of the equality of all persons before the court.

According to Paragraph 4 of Article 46 of the Law, the decision of the court to institute bankruptcy proceedings may be appealed against in the manner established by the CCP. This is a significant guarantee of the protection of the rights and freedoms of persons in judicial institutions.

In view of the arguments set forth, the conclusion should be made that the impugned Article 45, as well as Paragraphs 2 and 3 of Article 46 of the Law, is in compliance with Paragraph 1 of Article 29 of the Constitution.

2.4. In the opinion of the petitioner, there exist grounds to believe that the said norms of the Law violate the principle of judicial independence as pursuant to the said norms the court must submit to the will of the party concerned that has presented the statement, i.e., to institute bank bankruptcy proceedings. It is alleged in the petition that these impugned norms of the Law obligate the court to assess a conclusion of the Bank of Lithuania concerning the bank insolvency as the only and uncontested legal argument to legitimate the institution bank bankruptcy proceedings, and thereby the said norms deprive the court of the opportunity to pass an alternative decision—to refuse to institute bankruptcy proceedings.

When judging the compliance of the aforesaid norms of the Law with Paragraph 2 of Article 109 of the Constitution, wherein it is established that while administering justice, judges and courts shall be independent, it is necessary to once again emphasise peculiarities of the impugned norms of the Law: these are special norms regulating procedural manner of a particular category of civil proceedings. They establish supplementary conditions regarding instituting bank bankruptcy proceedings in court.

Dispositive as well as imperative methods of judicial regulation are applied in civil procedure law. The norm of a dispositive character is the aforementioned Article 5 of the CCP wherein it is established that the proceedings shall be instituted at the initiative of the party concerned, and not of the court. There exists, however, an imperative in Article 5 of the CCP: the court must institute civil proceedings provided the statement of the party concerned complies with the requirements of the norms of the civil procedure. The impugned norms of the Law are to be interpreted analogously: the court must institute bank bankruptcy proceedings if the statement of the party concerned is in conformity with general requirements of the norms of the CCP, as well as with supplementary conditions indicated in the Law. Thus, the institution of bank bankruptcy proceedings in a court is connected with the fulfilment of the corresponding requirements of a procedural character. It should not be judged to be in violation of the principle of the independence of judges and courts.

It is established in the impugned Article 45, Paragraphs 2 and 3 of Article 46 of the Law that the court shall institute bank bankruptcy proceedings following a statement of a corresponding subject provided only there is a conclusion of the Bank of Lithuania concerning the bank insolvency. This is the requirement of the admissibility of the means of arguing basing itself on the rule formulated in Article 64 of the CCP which states that the case circumstances which must be confirmed with certain means of arguing pursuant to the law may not be confirmed by any other means of arguing. The admissibility of the means of arguing is the question of the procedural form of presenting evidence, and not that of its content. As institution of civil proceedings is based on the establishment of legal facts of a procedural character, thus, according to the requirements of the said norms of the Law, to ground the institution of bank bankruptcy proceedings, the means of argumentation, viz., a conclusion of the Bank of Lithuania concerning the bank insolvency, are necessary.

Laws do not define any criteria of the insolvency of a bank. Article 9 of the Law on the Bank of Lithuania entitles the Bank of Lithuania to issue legal acts within the limits of its jurisdiction. It is established in Item 1 of the Resolution of the Bank of Lithuania “On the Insolvency of Banks” of 8 March 1995 that a bank shall be considered insolvent when the net assets of the bank are smaller than its commitments. It should be noted that the right of the Bank of Lithuania, as the state institution, to supervise the activities of banks, to announce the fact of the bank insolvency, presupposes corresponding obligation of responsibility of the legitimacy of the insolvency conclusion.

In a court, no evidence has the power established beforehand. While investigating a civil case, a court investigates and judges the content of the so-called necessary evidence. All parties taking part in proceedings are entitled to participate when the court investigates evidence. Thus, during a judicial investigation into bank bankruptcy proceedings (when judging the questions of a bank’s reorganisation or its rehabilitation in order to avoid its bankruptcy, as well as the question of a bank’s reorganisation), a court may freely check the fact of the insolvency of that bank.

On the grounds of the arguments set forth, the conclusion should be made that Article 45, Paragraphs 2 and 3 of Article 46 are in compliance with Paragraph 1 of Article 29, as well as Paragraph 2 of Article 109 of the Constitution.

Conforming to Article 102 of the Constitution of the Republic of Lithuania and Articles 53, 54, 55 and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

To recognise that Item 7 of Paragraph 1 of Article 37, Article 39, Paragraphs 1 and 2 of Article 40, Article 45 and Paragraphs 2 and 3 of Article 46 of the Republic of Lithuania’s Law on Commercial Banks are in compliance with the Constitution of the Republic of Lithuania.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

 Egidijus Jarašiūnas                           Kęstutis Lapinskas                           Zigmas Levickis

 Augustinas Normantas                    Vladas Pavilonis                              Jonas Prapiestis

 Pranas Vytautas Rasimavičius         Teodora Staugaitienė                       Juozas Žilys