Court upholds travel curbs on Hela Clothing Directors

• Commercial Bank alleges diverted export proceeds, undisclosed $ 8 m investment
• Judge says curbs serve inquiry into company’s affairs, not criminal probes
• DFCC Bank files similar application as other lenders join proceedings

The Commercial High Court of Colombo has upheld an interim order barring the five Directors of Hela Clothing Ltd., from travelling overseas. The Court rejected their argument that a court exercising civil jurisdiction has no power to restrict a person’s movement, in winding-up proceedings where Commercial Bank of Ceylon PLC accuses them of diverting export proceeds owed to it.

In an order delivered on Tuesday (13), Commercial High Court Judge Chamath Madanayake held that the restriction was justified and within the Court’s powers. He varied it, however, to allow the Directors to travel abroad for predetermined periods with the Court’s prior permission, subject to any conditions it may impose.

The respondent Directors are Panadura Liyanage Dilanka Jinadasa, Albert Rasakantha Rasaiah, Gayan Priyanka Gunawardana, Ranjith Sanath Perera Amaratunga and Aruna De Silva Muthumuni.

The case stems from a resolution passed by Hela Clothing to wind up the company. Commercial Bank then applied under Sections 374, 375 and 376 of the Companies Act No. 7 of 2007, which deal with fraudulent conduct by those running a company and empower the court to inquire into Directors who misapply or retain company money and order them to repay it. The bank is seeking to hold the Directors personally liable for the sums owed to it.

The bank said it had granted Hela Clothing facilities of up to $ 1 million, including pre-shipment loans, which fund an exporter’s costs before goods are shipped. The facilities were to finance export letters of credit and confirmed orders for raw material imports, on the condition that export proceeds were routed through the bank. 

The bank alleged that the Directors fraudulently failed to repay the loans, though they did not dispute the liability, and that they failed to route export proceeds through the bank while concealing the exports.

The bank also alleged that holding company Hela Apparel Holdings PLC had moved to sell some subsidiaries without creditor approval. It further alleged that the Directors had fraudulently appropriated $ 8 million received from Emerald Investments (Private) Ltd, a sum not disclosed in the winding-up petition. 

According to the bank, the company resolved to wind up along with other companies without disclosing its assets and liabilities, the proceeds of exports financed by the bank or the investment. The Court has made no finding on these allegations.

Several other banks have intervened in the case. DFCC Bank has filed a similar application that is yet to be supported, and other banks intend to file applications under similar provisions, the order said. Counsel for HNB and NDB also made submissions.

The Directors have not applied under Section 521 of the Act to revoke the interim orders, but have reserved the right to do so. Their objection was confined to jurisdiction. Their lawyers argued that only a court exercising criminal jurisdiction could impose travel restrictions, that such orders could be made only under the Immigration and Emigration Act, and that neither the Companies Act nor the sections invoked by the bank provided for them. The company also submitted that Sri Lankan courts had never imposed travel restrictions in civil cases, particularly in winding-up matters, and that doing so would open the floodgates.

Judge Madanayake pointed to provisions of the Civil Procedure Code and to Sections 310 and 313 of the Companies Act, which allow the court to order the arrest of Directors who ignore summons and of contributories, those liable to contribute to a company’s assets, who are about to leave the country. 

An arrest order would serve little purpose if the same court could not stop the person leaving, he reasoned. He held that Section 521, which allows the court to make orders ‘as it thinks fit’, and the Court’s inherent powers were wide enough to cover such restrictions.

“In view of the above, I answer the first question against the company and hold that this court has jurisdiction to impose travel restrictions in appropriate circumstances,” the Judge said.

He cited as persuasive authority the English Court of Appeal’s 1986 decision in Bayer AG v Winter, in which a defendant was restrained from leaving the jurisdiction until Mareva and Anton Piller orders, which freeze assets and permit the seizure of evidence, had been executed.

The company had also argued that the bank could not invoke these provisions as no winding-up order had been made and the petition had not even been published. The Judge accepted this in respect of Section 374, which applies only after a winding-up order. He held, however, that Sections 375(2) and 376 operate during the course of a winding up, which under Section 377(2) is deemed to begin when the petition is presented.

The Judge said a creditor, as an outsider with no access to a company’s internal records, cannot be expected to produce all the necessary material. Where the bank alleged that the Directors had not disclosed the company’s exports, the proceeds, its investments, and its assets and liabilities, a greater burden fell on the Directors to reveal information within their exclusive knowledge. 

Their fiduciary duties in such an application extend to the creditor and to the Court, he said, adding that the Court’s role is supervisory rather than that of a mere umpire. The Directors had informed the Court that they would be leaving the country.

The Judge, however, rejected the banks’ contention that travel restrictions should be imposed at the outset of civil proceedings to facilitate possible criminal action, noting that the bank had disclosed in its petition its intention to initiate criminal proceedings and that investigators could obtain such restrictions from a competent court. 

“The powers of this court cannot be extended towards such end,” he said. Any restriction is confined to ensuring the Directors’ presence for examination and the production of books, accounts and information on the company’s affairs, assets, liabilities and investments, he added.

The travel restriction was among interim orders issued on 25 September, 2026, when President’s Counsel Shivan Coorey supported Commercial Bank’s applications against Hela Clothing and Foundation Garments (Private) Ltd. He told the Court that the two companies and Hela Apparel Holdings shared common Directors and a registered address. The Court issued notice on the first to fifth respondent Directors in both cases and granted interim orders under prayers (f) to (i) in the Hela Clothing case and (g) to (i) in the Foundation Garments case, subject to the bank depositing Rs. 1 million as security. It also issued the travel restriction under prayer (j) and directed that the interim orders be communicated to the Registrar of Companies by email.

Coorey told the Court that the bank had extended a $ 3 million pre-shipment facility to Foundation Garments on the same conditions, that each company had guaranteed the other’s debts, and that Hela Apparel Holdings had given letters of comfort undertaking that the companies would not be liquidated. 

He said the bank issued a demand on 27 July, 2026, which Jinadasa acknowledged on 10 August, 2026, informing the bank of the planned winding-up applications. Coorey argued that exporters are required by law to repatriate export proceeds, citing a Gazette dated 1 July, 2024, and told the Court the case reflected a pattern of exporters taking assets out of the country using public money.