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TFC buy against NSB Act: Legal experts


Comments / 2194 Views / Thursday, 10 May 2012 00:36


Dealing a fresh blow to the contentious deal legal, experts say NSB’s decision to buy a 13% stake in The Finance Co. Plc (TFC) last month had contravened the National Savings Bank Act.



They said as per Section 39 of the NSB Act No. 30 of 1971, the savings giant before investing in a particular stock (other than those  in which Government has controlling 50% stake) must obtain approval from Minister (of Finance) in consultation with the Monetary Board. This section deals with authorised business of the bank.



At present the Minister of Finance is President Mahinda Rajapaksa and this requirement as per the Act has added a new dimension to the NSB-TFC deal bringing the country’s Chief Executive directly in to the fiasco. However last week, he ordered the Finance Ministry to look into the deal after which the Treasury Secretary suspended NSB from paying until an inquiry is completed.

The 27 April deal of NSB a buying 13% stake in TFC for Rs. 390 million (around eight million shares at Rs. 50 each, above Rs. 20 from the prevailing market price) from a consortium of sellers including two TFC Directors, one of whom is also the CEO of the broking firm doing the transaction, has sparked widespread criticism over a host of reasons including bad corporate governance and alleged insider trading.

However, the TFC buy isn’t the first stock market deal of NSB, which has an exposure of Rs. 7 billion in listed equity investments. Market analysts said it was impractical for an institution like NSB to seek approval for each stock market investment. NSB has been a key local institutional investor in the market like in the case of EPF and ETF though by law the major exposure is to Government securities.

Speculation was rife that the deal would be cancelled with the shares going back to the sellers, who will be required to repay the settlement bank Sampath Bank which paid for the deal though NSB hadn’t remitted funds nor did it reject the buy though having the freedom to do so.

The Board of Directors of Sampath Bank, which has a Rs. 390 million overdrawn status within the Central Depositors System of the CSE on account of TFC deal fiasco, met yesterday evening on the same issue. The CSE has also suspended NSB’s custodial bank role in view of its failure to pay for the share purchase.


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