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Monday, 13 March 2017 00:03 - - {{hitsCtrl.values.hits}}
By S.S. Selvanayagam
Senior Counsel appearing for Perpetual Treasuries, referring to directives issued by the Supervision of the Non-Bank Financial Institutions Department of the Central Bank, argued that it was apparent that though the directives do not directly refer to the linked-bond issue, the directives were obviously an attempt to respond to the controversy.
President’s Counsel S.A. Parathalingam, making his argument before the Court of Appeal last Friday, claimed that Perpetual Treasuries had been singled out and victimised as it had been the biggest bidder in the auction of Treasury bonds. It was submitted that there were other bidders that had also bid over the advertised amount but who had been conveniently forgotten about. It was submitted that bidders regularly bid over the advertised amount at different yield rates.
The bench comprised Justices Vijith K. Malalgoda and S. Thurairaja.
Counsel, continuing his argument, stated that the actions of the Central Bank were ‘ultra vires’ or beyond its legal power or authority and unreasonable in the issuance of the unlawful and unwarranted directives dated 7 November 2016 under the Regulation 11(2) of the Local Treasury Bills (Primary dealers (Regulations) and the Registered Stock and Securities (Primary Dealers) Regulation.
He stated that Perpetual Treasuries was non-insolvent and it was a registered primary dealer which was a specialised intermediary in the government security market and only registered primary dealers were permitted to participate in Central Bank bond auctions.
He said that the primary dealers are in the business of buying government securities issued by the Public Debt Department and trade such securities in the secondary market to investors.
He said the master dealer trades with the Secondary Market dealer who wants to invest, and as such Perpetual Treasuries trades with its own clients.
He submitted that Treasury bonds are being issued at various rates with varying yield rates. He submitted that up to date Perpetual Treasuries had not been faulted and a charge has not been made out against Perpetual. “Notwithstanding which Perpetual had been slandered, convicted and victimised by certain quarters including the press.”
He cited a fundamental rights case instituted by three professionals against Perpetual Treasuries alleging that that Government suffered a loss as a consequence of the auction on 27 February 2015. However, the Supreme Court at the stage of supporting dismissed the case stating that there was no legal basis to issue notice, he pointed out.
Nevertheless, Counsel brought to the attention of the Court that an unfortunate event occurred on 1 April 2016, which led to the default of the Intra-Day Liquidity Facility (ILF) which is a means of borrowing money and settling it before the closure of the same business day.
He clarified that it occurred as a gridlock (a situation in which there are so many queues payment instructions awaiting fund settlement that cannot move at all) occurred within the system.
He said it occurred on 1 April 2016 which is a Friday and the Domestic Operation Department (DOD) of the Central Bank sent a letter dated 4 April 2016 stipulating the default and respective charges of such failure for a period of three days inclusive of Saturday and Sunday. Counsel submitted that the fine was settled by Perpetual as required and on the very next business day.
He submitted that Perpetual Treasuries had already been penalised and fined for the said violations. Notwithstanding which, the letter of the Director of Department of Supervision of Non-Bank Financial Institutions of the Central Bank dated 7 November 2016 alleged that in view of the said violation and certain other minor defaults, Perpetual Treasuries has failed to carry on the business of a primary dealer in compliance with the provisions of the regulations made under the Local Treasury Bills Ordinance and that it was carrying on business of a primary dealer in a manner detrimental to its customers and the national economy.
Counsel contended the allegations were untruthful and the reasons cited to impose the purported directives are baseless amounting to illegality and it was ‘ultra vires’ the regulatory authority the Central Bank sought to act under.
He highlighted that there was no direction in the letter dated 7 November 2016 by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank to Perpetual Treasuries to comply with any provisions of the said ordinance or to cease to carry on business in a specified manner.
Instead it was pointed out that the Central Bank, under the guise of protecting the customers of Perpetual Treasuries, had imposed disproportionate and unreasonable restrictions, tainted with malice and in terms of its own whims and fancies. He lamented it was unprecedented and they have acted outside of the scope of regulations made under the Local Treasury Bills Ordinance.
Petitioners Perpetual Treasuries Ltd, Perpetual Asset Management Ltd. and Perpetual Capital Holdings Ltd. cited the Central Bank, Monetary Board, CB Governor Dr. Indrajit Coomaraswamy and 10 others including the Attorney General as respondents.
Instructed by G.G. Arulpragasam, S.A. Parathalingam PC with Nishkan Parathalingam and Niranjan Arulpragasam appeared for Perpetual Treasuries Ltd. and Nihal Fernando PC with Romali Tudawe and Maduka Perera appeared for the two other petitioner companies. Faisz Musthapha PC with Faiza Markar instructed by Gowry Shangary Thavarasha appeared for the Central Bank. Deputy Solicitor General Milinda Gunatilake appeared for the Monetary Board and the Attorney General.
Some of the directions are:
Perpetual Treasuries Ltd. shall not bid at any primary auctions exceeding 12.5% of the total amount offered at such an auction and shall not bid exceeding 20% of the offered amount of each item representing different maturities.
The daily aggregate of the secondary market transactions by it in government securities shall not exceed Rs. 1 billion.
It shall not, except with the prior written approval of the Monetary Board, distribute its profits, retained earnings or reserves.
It shall not enter into any transaction for consideration or otherwise, except with the prior written approval of the Monetary Board, in respect of anything not connected with the activities of a primary dealer.
