Nihal files fresh motion in District Court of Colombo over Hotel Developers

Letters sent to Directors notifying them of personal liability for loss of over Rs. 7 b to the state

Lawyers for Nihal Sri Ameresekere has filed a Motion on 19 June in the District Court of Colombo Case No. 217/CO with copies of Letters sent by them to seven Government Directors of Hilton, namely: Chairman Tirukumar Nadesan, former Chairman Nawaz Rajabdeen, Director V.  Kanagasabapathy,  Director N.  Warusavitharana, Director K.V.N Jayawardena, Director Kosala R. Wickramanayake and Director Tissa Wickramasuriya putting them on notice of being liable to be personally sued under the provisions of Companies Act No. 7 of 2007 for causing loss of over Rs. 7 billion to the State.

Legal circles have opined that the Government should take action and enforce the law regardless of the persons involved.

In the Letter to Chairman Tirukumar Nadesan, his Lawyers had pointed out that under Article 52 of the UN Convention Against Corruption, to which Sri Lanka is a party, he could be deemed to be a politically exposed person.

In the Letter to former Director General, Department of Public Enterprises, V.  Kanagasabapathy, his Lawyers had pointed out that he is a Chartered Accountant and had been a Member of the Council of the Institute of Chartered Accountants of Sri Lanka, and stands bound by the applicable Professional Standards and the Code of Professional Conduct and Ethics of the said Institute.

In the Letter to K.V.N. Jayawardena, his Lawyers had pointed out that he is an Attorney-at-Law and that in terms of Rule 11 of the Supreme Court (Conduct of and Etiquette for Attorneys-at-Law) Rules 1988, an Attorney-at-Law is prohibited from accepting any professional matter, which would involve him in the commission or in the furtherance of the commission of an offence and that he is a Member of the Company Law Advisory Commission, which was responsible for the formulation of Companies Act No. 7 of 2007.

Excerpts of the letter sent to Hotel Developers Chairman

We write as instructed on behalf of our client, Mr. Nihal Sri Ameresekere of 167/4, Vipulasena Mawatha, Colombo 10, who had been a promoter, subscriber and director of HDL, and its chairman from 29.7.2004 to 10.11.2005.

From or about 12.5.2010 you have functioned and continue to function, as the chairman of HDL.

With his intimate knowledge vis-à-vis HDL, our client, responding to your numerous requests, as chairman, HDL, had readily co-operated, in affording requisite clarifications and explanations on facts pertaining to HDL.

We are instructed that in or about May 1996, present Secretary, Ministry of Finance and Secretary to the Treasury, P.B. Jayasundera as then Director General, Economic Affairs and Director of HDL, had been one of the persons anxious to pay Mitsui & Co. Ltd., and Taisei Corporation Jap. Yen. 3,110,051,652 in October and November 1996, from the accumulated funds of HDL, for him and others to have proceeded to the Sri Lanka Aid Group Meeting in November 1996, at which a sum of about $245 million, had been pledged to Sri Lanka as aid/grant by Japan.

Cited below is the following Recital from the Preamble in the Addendum referred to herein below, which had been finalised by the Attorney General:

“And whereas the Government wishes to continue to maintain without any impediment the cordial relationships with Japan and the Government has been concerned about the delay in the implementation of the aforesaid Agreements.”

Relying on and trusting such solemn promise and undertaking given, among others, by then Director General, Economic Affairs and Director of HDL, P.B. Jayasundera, our client acceding to the insistence of the Government, at the behest of Mitsui & Co. Ltd., and Taisei Corporation, had entered into the Addendum dated September / October 1996 with the Government, Mitsui & Co. Ltd., and Taisei Corporation, which said Addendum formed a part and parcel of the said Settlement Agreements, and had been witnessed by him.

At the same time five Letters of Apology and Regret dated 21.10.1996 had been issued to our Client by HDL, signed by him, and the Representative of Mitsui & Co. Ltd., and Taisei Corporation.

By the said Addendum, the said ‘Conditions Precedent’ were converted to ‘Conditions Subsequent’, and the Clause 5 of Settlement Agreement No. 3, which had personally affected a Minister of the Government, had been excluded from the said Settlement Agreements, at the behest of the implorations made by him, and then Secretary Ministry of Finance and the Attorney General.

In conformity with the foregoing arrangement/s, our client had withdrawn his two cases: D.C. Colombo Nos. 3155/Spl and 3231/Spl., and decrees had been entered therein on 23.10.1996 by the High Court of the Western Province (sitting in Colombo) exercising civil jurisdiction.

Immediately thereafter, P.B. Jayasundera, as then Director General, Economic Affairs and Director of HDL, had convened a meeting of the Board of Directors of HDL on 25.10.1996, and having chaired the said HDL Board Meeting had, inter-alia, affirmed as follows:

“The Chairman, Dr. P.B. Jayasundera, informed that this board meeting was convened as a matter of national importance in the interest of Sri Lanka Japan relationship and that he was acting at the request of the Government and urged the directors to proceed with the meeting on the agenda placed before them. All others agreed.”

As a result, Mitsui & Co. Ltd., and Taisei Corporation in October 1996 had obtained from the funds accumulated in HDL, as a consequence of the Interim Injunctions, which had been obtained by our client in October 1991 (with enjoining orders having been issued in September 1990), a lump-sum payment of Jap. Yen. 2,138,082,192 and in November 1996 the first installment of Jap. Yen 971,969,460 i.e. a total of Jap. Yen  3,110,051,652, then $27.5 million, and the balance 14 installments over the years 1997 to 2010, even though the lawyers representing Mitsui & Co. Ltd. and Taisei Corporation had confirmed to the Supreme Court on 15.5.2006, that Mitsui & Co. Ltd., and Taisei Corporation would waive one installment.

The foregoing precipitated the dire financial straits that HDL subsequently got into.

For the settlement entered on 28.6.1995 at the behest of the Government at the instance of, Mitsui & Co. Ltd. and Taisei Corporation, on the insistence of our client, they had written-off on 30.6.1995 Jap Yen. 17,586 million., then equivalent to $207 million., i.e. then Rs.10,200 million., on their stated claims on the Government guarantees, and had re-scheduled the balance agreed debt over a further period of 15 years (originally fully payable by 1999), with a one year grace period, at a reduced rate of interest of 5.25% p.a., (originally 6% p.a.) which had been immensely beneficial to HDL and the Government, as the Guarantor; and at an average 13% p.a. interest, which rate is comparable to the interest charged by the Government on advances to HDL, the said write-off would amount to Rs.81,450 million., as at 30.6.2012.

Interim reports dated 16.6.2005 and 13.7.2005 had been tendered by a negotiating committee, appointed by the Secretary to the Treasury, to settle disputes pertaining to HDL, which comprised of Manik Nagahawatte, then Director, HDL and Chairman, Bank of Ceylon, K.V.N. Jayawardena, Attorney-at-Law and then Senior State Counsel, who also was and is a Director of HDL, Cyril Gunapala, A.A. Wickremasinghe and E. Arumugam, who had been then Director, Department of Public Enterprises.  

Copies of the said interim reports dated 16.6.2005 and 13.7.2005, of the negotiating committee had been tendered to the Supreme Court on 18.7.2005 by K.V.N. Jayawardena,  as  then Senior State Counsel, (also a then Director of HDL) representing the Attorney General, appearing for the Government.

The said interim report dated 16.6.2005 under the hand, among others, of K.V.N. Jayawardena, Attorney-at-Law had, inter-alia, stated thus:

“The Company (HDL) appears to be insolvent. The present common law principles warrant the Directors to resolve to wind up the Company. When the new Companies Act comes into force, the Directors would be compelled to resolve to wind up the Company due to the personal liability cast upon them in the event of a failure to do so.” (Emphasis added)

The foregoing had been so stated by K.V.N. Jayawardena, Attorney-at-Law, since he at that time had been a Member of the Company Law Advisory Commission, which had included, among others, also our Client, and which Commission had formulated the Companies Act No. 7 of 2007.

Upon Cabinet Memorandum dated 5.10.2005, the Cabinet of Ministers on 13.10.2005 had approved the CANC Proposals annexed thereto, which had recommended that, if the restructuring of HDL set out therein is not given effect to, then that HDL be wound-up.

Thereafter, by Cabinet Memorandum dated 21.1.2007 approved on 24.1.2007, wherein it had been expressly stated that ‘HDL has not had the resources to make the loan repayments in full ….’, Cabinet Approval sought and obtained had been to oppose the winding-up of HDL, (which our Client had instituted in conformity with the foregoing Cabinet Decision) and to indicate to Court, as an option the restructuring of HDL. This did not happen.

In the meanwhile, accumulated losses of HDL as at 31.3.2007 of Rs.6, 758.8 million, had by 31.3.2010 risen to Rs.10, 302.1 million; and its interest bearing loans as at 31.3.2007 of Rs.8, 537.3 million, had by  31.3.2010 risen to Rs.11, 725.6 million.

Notwithstanding that the lawyers representing Mitsui & Co. Ltd., and Taisei Corporation had confirmed to the Supreme Court on 15.5.2006, that Mitsui & Co. Ltd., and Taisei Corporation would waive one installment, this installment however intriguingly had been paid.

Deputy Secretary to the Treasury had by Letter dated 10.5.2011 addressed to you, as Chairman HDL, whilst having informed of the inability to accept the re-payment schedule over 18 years proposed by HDL, had requested HDL to re-pay in two years time, the outstanding loans to the Government stated therein as Rs.12, 098.6 million.

In such context, under and in terms of the provisions of the Companies Act, our client had filed an Application in the Commercial High Court to re-structure HDL.

Whilst the aforesaid two year period commencing on 10.5.2011 had been pending, in breach thereof, shortly thereafter, HDL had been surreptitiously included, as the only Underperforming Enterprise, Scheduled to Act No. 43 of 2011, on alleged grounds of protracted litigation, suppressing the totality of facts pertaining to HDL.

On 3.5.2007 the new Companies Act No. 7 of 2007 came into force, whereby a Company in a bankrupt position, such as HDL, was statutorily mandated to be wound-up, and any Director of the Company, who opposed an Application to wind-up, was personally liable for the excess of debts over the assets of such Company, which in the instance of HDL is reckoned to be around Rs.7, 000 million, since the Land, at the insistence of our Client in terms of the said Settlement Agreements, had already been vested in the Government in July 1999.

Thus and thereby the Government Directors of HDL, who were in management and control of HDL, having opposed the said Winding-up Application, stand statutorily bound and liable to be personally sued for such debt, which is to the Government; moreso being public funds. The directors of a company are statutorily prohibited from acting in contravention of the provisions of the Companies Act, and are precluded from relying on professional or expert advice, without making proper inquiries.

We, as instructed,  do hereby put you on notice of the Statement of Objections dated 23.5.2012 of our said Client in the Winding-up Application, particularly of the breaches of the provisions of the Companies Act No. 7 of 2007 stated therein, and of the personal liability of the Directors concerning public funds.

Our client is advised that within the meaning of Article 52 of the UN Convention Against Corruption, to which Sri Lanka is a party, you could be deemed to be a politically exposed person, warranting enhanced scrutiny, as stipulated therein.