Commercial HC overrules jurisdiction objection and upholds Interim Order granted against Mascons

The Commercial High Court, through an extensive Order dated 25 June 2018, dismissed a preliminary objection raised by Mascons Ltd in case No. HCC/31/2018/CO, instituted by Petitioners Mahenthiran Subramaniam (a Joint Managing Director/Shareholder of Mascons) and Amirtha Gowrie Mahenthiran (a Mascons shareholder).

The Petitioners preferred their Application before the Commercial High Court of Colombo on the basis that though Mahenthiran Subramaniam functioned as a Joint Managing Director of Mascons, he had over a period of time been excluded from the day-to-day management of the company by Sivamohan Sathiamoorthy and Sathiamoorthy Subramaniam, who along with Mahenthiran Subramaniam function as the Board of Directors of Mascons.

The Petitioners through their petition maintained that, despite several requests from Mahenthiran Subramaniam, the company had failed to provide Mahenthiran Subramaniam with information/financial/documentation pertaining to Mascons as he is lawfully entitled to, given his position as a Joint Managing Director of Mascons.

Furthermore, the Petitioners through their petition stated that due to the company’s continuous refusal to provide Mahenthiran Subramaniam with the requested information, that the Petitioners made inquiries and were shocked to discover several acts of mismanagement committed by the de facto management of Mascons.

The Petitioners through their Petition specifically drew the attention of the Court to dealings between Mascons and one of its associate companies, Sealcore Stainless Steel Industries Ltd, whereby through certain practices the de facto management of Mascons was utilising the company for the sole benefit of Sealcore. The Petitioners stressed that these acts were troubling, given that Sivamohan Sathiamoorthy and Sathiamoorthy Subramaniam also function as Directors of Sealcore, in which a large portion of the shareholding is held by Sivamohan Sathiamoorthy, Sathiamoorthy Subramaniam and members of their immediate family.

The Commercial High Court, on hearing the Petitioners’ Application in the first instance ex parte, granted Interim Orders against Mascons, and also Sealcore, whereby the companies were directed to disclose certain information/financials/documentation to Mahenthiran Subramaniam.

Thereafter Mascons, appearing ex parte through a Motion dated 21 May 2018, moved the Court to dismiss the Petitioners’ case in the first instance, on the basis that the Commercial High Court could not hear and determine the dispute, due to the existence of an arbitration clause in the Articles of Association of Mascons, which precluded any dispute between Mascons and its shareholders being heard by Court.

Thereafter, pursuant to hearing extensive submissions by Counsel appearing before Court, and on consideration of Written Submissions filed by parties, Commercial High Court Judge Ruwan Fernando dismissed the objection raised by Mascons with costs, and upheld held the Interim Order issued against Mascons, holding that in this given dispute, the Commercial High Court was in fact vested with jurisdiction to hear and determine the matter.

By his extensive Order, the Honourable Commercial High Court Judge considered previous Orders/Judgments of Sri Lankan Courts, such as the celebrated decision of Wimalachandra J in Aitken Spence and Co Ltd v The Garment Services Group Ltd (CHC/02/2003(02)), the subsequent decision of Samayawardena J Sumith Chandrasiri Galamangoda Guruge v Serene Pavilions Pvt Ltd and others (CHC/41/2013/CO) upholding the Aitken Spence Case, as well as the case of Heung Enterprises Company v Alumex Pvt Ltd and Others (CHC/06/2005(02) as decided by A. W. A Salam J, and decisions of Indian Courts such as Haryana Telecom Ltd v Sterlite Industries (India) Ltd (1999 5 SCC 688), Booz Allen Hamilton & SBI Home Finance Ltd (2011 5 SCC 532), and Rakesh Malhotra v Rajinder Kumar Malhotra and Others (Bombay High Courts No.10 of 2013).

Judge Fernando, through his Order dated 25 June 2018, maintained that the wide statutory power vested in the Court to determine matters of oppression and mismanagement could not be said to have been overruled by the arbitration clause contained in the Articles of Association of Mascons, given that the urgent disputes of serious financial mismanagement and fraudulent acts complained of by the Petitioners were of a nature that could not be resolved through arbitration, thus falling within the exclusive domain of the Court. Judge Fernando held that there was no material before Court to show that the Petitioner’s case was mala fide, vexatious, or oppressive, and been preferred to Court merely ‘dressing up’ as such a dispute to avoid an arbitration clause. Thus the Court could exercise its extraordinary jurisdiction in respect of acts of oppression and mismanagement, as set out in the Companies Act No. 7 of 2007, to make Orders and give such directions as the Court sees fit. The matter is due to be taken up next before the Commercial High Court on 5 July 2018.

The Petitioners were represented in Court by Dr. Harsha Cabral, President’s Counsel, who appeared with Counsels Nishan Premathiratne and Nadun Wijayasriwardena on the instructions of Julius and Creasy Attorneys-at-Law.

Mascons Ltd was represented in Court by Romesh De Silva PC who appeared with Counsels N. R. Sivendran and Renuka Udumulla on the instructions of D. L. and F De Sarams Attorneys-at-Law.