High Court issues Interim Order in TFC case

By S.S. Selvanayagam

The Colombo High Court issued an Interim Order on 10 November restraining the Respondents from granting approval for the waiving off of the pre-emptive rights of holders of voting ordinary shares and workers shares (non-voting shares) to a new issue of shares in respect of The Finance Company PLC.

High Court Judge Rohini Walgama also issued the Interim Order restraining the private and/or the issue of up to one hundred million nonvoting ordinary shares to fixed deposit holders and/or the issue of up to forty million ordinary voting shares through public subscription or otherwise at the Extraordinary General Meeting of The Finance Company on 11 November pending the hearing and determination of Petition filed by Janaka Ratnayake.

Petitioner Ratnayake in his litigation cited Ceylinco Investment Company Ltd., J. L. B. Kotelawala, S. P. Kotelawala, Sanka Wijesinghe, A.P.G. Karunathilake and The Finance Company as Respondents.

M. A. Sumanthiran with Niran Anketell and J. Arulananthan instructed by Mohan Balendra appeared for the Petitioner.

The Petitioner is the Chairman of the Merchant Bank of Sri Lanka (MBSL). There was the collapse of the Ceylinco Group of Companies. The Central Bank invited the MBSL to step in and deal with the management of some of these Ceylinco Group of Companies that were ailing based on the performance of the petitioner and the MBSL.

In the process, the MBSL accepted it and had turned the Ceylinco Savings Bank into a profitable institution. Thereafter Trillium Residences and City House and Real Estate Company sought the petitioner’s assistance. The Petitioner and the MBSL took over them and managed those as well.

In respect of Ceylinco Investment Company Ltd. and The Finance Company, the Petitioner owns 500,000 shares in the Ceylinco Investment Company Ltd. That amount to 46.35% and Merchant Bank owns an equal amount of shares another 46.35%.

Subsequently, several matters are pending in the Supreme Court in Fundamental Rights Applications reports as to what he was doing with regard to managing these ailing companies.

On 6 August, the Supreme Court made order cancelling the issue of 500,000 shares belonging to the MBSL and Petitioner in Ceylinco Investments Ltd. The Attorney General has gone into this affair and found that it is an illegal transaction and that the transaction was cancelled.

On the application of parties, the Supreme Court issued order on Petitioner Janaka Ratnayake that he should not serve any of the Boards of the Ceylinco Group of Companies nor on the Board of Merchant Bank in view of the said transaction which the Attorney General had gone into and which has been found to be fraudulent.

This order was suspended by the Court on the basis that the Petitioner was not a party nor was he ever heard.

In the meantime, an Extraordinary General Meeting was called for on 11 November by The Finance Company where the Petitioner was to convert depositors’ deposit to the shareholdings to issue 100 million non-voting ordinary shares and 40 million ordinary voting shares.

The Ceylinco Investment Company, of which the petitioner has 46% shares, owns 36% of The Finance Company shares. If the resolutions granting approval for the waiving off of the pre-emptive rights of holders of voting ordinary shares is passed, the petitioner alleged that it would reduce to 4%.

Petitioner stated that the Ceylinco Investment Company is acting on the basis that the petitioner and the MBSL who together hold more that 85% shares are not shareholders on the basis of earlier Supreme Court order which has later been suspended.

The Petitioner is seeking the stay the passage of these resolutions on the basis that the Petitioner is a shareholder of the Ceylinco Investment Company.