By Legal Eye
The entire country must be shocked, surprised and perturbed by the contents of the report of the investigative team led by Assistant Governor Kumudhini Saravanamuttu which has revealed to the Monetary Board, the governing body of the Central Bank, that a purported scam has caused a loss of Rs. 9.5 billion to the Employees’ Provident Fund.
It is time that the Minister of Justice and Labour Relations to whom the implementation of the provisions of Employees’ Provident Fund Act, No. 15 of 1958 (EPF Act) is assigned in terms of the Gazette Order made under Article 44 of the Constitution of the Democratic Socialist Republic of Sri Lanka and published in the Gazette Extraordinary No. 1897/15 – 18 January 2015, relating to the assignment of powers and functions of ministries causes an examination of the provisions of the EPF Act and ascertains the correct legal provision relating to the investment of the monies of the Employees’ Provident Fund – the largest fund in Sri Lanka.
Ideally this subject should have been assigned to the Minister of Labour.
In this regard, I wish to highlight certain legal issues for the consideration of the relevant Minister. According to the EPF Act, the investment of the EPF monies is entrusted to the Monetary Board of the Central Bank (Monetary Board) established under the Monetary Law Act Chapter 422 of the Ceylon Legislative enactments.
The legal issues that need examination are the manner in which the Monetary Board could make investments of the monies entrusted to it.
According to the EPF Act, the Monetary Board could invest the monies entrusted to it for management, in securities.
The relevant provision in the EPF Act reads as follows:
5. (1) The Monetary Board –
(e) may invest such of the monies of the Fund as are not immediately required for the purposes of this Act in such securities as the Board may consider fit and may sell such securities.
There is no legal definition of the word “securities” in the EPF Act.
Regarding the question whether
a) the monies could be invested in shares of companies. It was legally contended that the EPF Act did not permit the investment of shares of companies because the word ‘securities’ was not defined in the Act.
On the contrary in the Employees Trust Fund Act No.46 of 1980 (ETF Act) which is subsequent law it is specifically stated that the Trust Fund Board could invest the money in the Trust Fund established under the said Act in securities and shares.
The relevant section that is S.8 (d) of the ETF Act reads as follows:
8. The Board –
(d) may invest such of the monies of the Fund as are not immediately required for the purpose of this Act in such shares or securities as the Board may consider fit and may sell such shares and securities;
In view of the distinction of the two laws, the then Attorney General had expressed the opinion that the EPF monies cannot be invested in anything other than Government securities. Subsequently as stated in the annexed document late K.C. Kamalasabayson, then Attorney General, had changed this opinion and stated that the monies could be invested in shares, contradicting the earlier opinions of the Attorney General.
Consequently, the Monetary Board commenced investing the EPF monies in company shares and in the recent past it has commenced investing the EPF monies aggressively in shares of commercial banks and other private companies and has consequently incurred heavy losses.
b) EPF monies could be utilised to purchase Government securities in the secondary market.
The EPF Act provides for the investment of funds in Government securities and there is no legal issue in buying Government securities in the primary market. However, it is doubtful whether legally the word “invest” would permit the Monetary Board to use the EPF monies to buy Government securities in the secondary market.
The definition of the word “invest” would not, in my view include “trading”. According to Black’s Law Dictionary, the definition of the word “invest” means ‘to loan money upon securities of a more or less permanent nature, or to place it in business ventures or real estate, or otherwise lay it out, so that it may produce a revenue or income’.
In view of the fact that the EPF is permitted to bid to purchase Government Treasury bonds at the initial issue by the Public Debt Department, consideration would have to be given for the exclusion of the EPF using its monies to purchase Treasury bills and bonds in the secondary market
In my view, according to the tenor of the EPF Act, EPF is a trust fund where the monies belonging to the employees in the private sector, who the EPF Act is concerned with, are held in trust under the supervision of the Commissioner of Labour and managed by the Monetary Board as trustees.
Therefore, it would be salutary for the Minister of Justice to examine the provisions of the Trust Ordinance in relation to the investment of the trust funds – i.e. the EPF monies by the Monetary Board and make the Monetary Board legally accountable and liable for the colossal loss caused to the fund. Minister and the Commissioner of Labour is legally bound to wake up and take very early remedial action in the interest of all the EPF.
Incidentally, it may be possible for trade unions to represent the members of EPF who could be considered as beneficiaries of the Trust (EPF) to invoke provisions of the Trust Ordinance to recover any loss caused to the EPF by mismanagement by the Monetary Board and the staff of the Central Bank, if the reports reveal facts which are accurate.