Banks breathe sigh of relief with landmark judgement by High Court

Friday, 13 June 2025 00:04 - - {{hitsCtrl.values.hits}}

A recent landmark judgement of the Civil Appellate High Court by Justice Dr. D.F.H. Gunawardhana, with Justice Dr. Namal Balalle agreeing, has finally clarified a point of law in the area of winding-up of companies in Sri Lanka.

The issue argued before the High Court was whether a bank is liable to reimburse a company in liquidation, where a bank has allowed outward remittances from a bank account of a company being wound-up during the pendency of winding-up proceedings.

In a major victory for State Bank of India, the bank successfully defended itself against a claim for $ 260,000, made by the Liquidator of TCI Hotels, the entity being wound-up.

The Liquidator claimed that the bank had allowed an outward remittance to a third- party beneficiary in Dubai, after a petition for the winding up of TCI Hotels had been instituted in the District Court of Colombo.

The District Court held against the bank, requiring the bank to reimburse the amount to the company being wound-up.

The judgement of the District Court was challenged before the High Court of Civil Appeal and President’s Counsel Avindra Rodrigo, on behalf of State Bank of India, argued that where there was any disposition of company property in the course of winding up proceedings, the relevant provisions of the Companies Act did not operate so as to impose restitutionary liability on intermediary agencies such as banks. Counsel further argued that the remittance was made on the lawful instructions of the directors of the company being wound-up and the mandate of the bank to act on lawful instructions of its customers was not prevented by winding up proceedings in the absence of a Court order or an express direction by the appointed liquidators.

High Court Judge Dr. Gunawardhana, having considered the arguments made on behalf of both parties, clarified the point of law in contention in a reasoned judgement, with which Judge Dr. Balalle agreed. The Court held that the bank had acted on the instructions of its customer and was therefore not responsible for effecting the transfer while winding-up proceedings were underway. The Court further held that the Liquidator should proceed for recovery against the third-party beneficiary in Dubai.

After a hard-fought legal battle, the High Court has delivered a much required judgement clarifying a significant point of law, removing the uncertainties faced by commercial banks when allowing transactions out of accounts held by companies against whom liquidation proceedings are pending. Prior to this judgement, banks were placed in a quandary when receiving instructions from companies in liquidation and the matter was finally put to rest.

State Bank of India was represented by Avindra Rodrigo, PC with Raneesha de Alwis on the instructions of FJ&G de Saram, whilst the Liquidator was represented by Nihal Fernando, PC, V.K. Choksy, PC and Rajindra Jayasinghe.

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event including Valentine ’s Day. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Flower Bouquets, Clothing, Watches, Lingerie, Gift Sets and Jewellery. Also if you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.