Courts issue interim order preventing Seylan Bank from voting on 12m shares

The Commercial High Court on Thursday issued an interim order preventing Seylan Bank PLC from voting on 12 million shares held by the Bank. The decision was in response to a petition alleging that the Bank had purchased the voting shares utilising its own funds in violation of provisions in the Companies Act as well as the Bank Act.

The petitioners W. M. V. Perera and W. L. G Hakmanaarachchi charged that Seylan Bank PLC had over a period of time utilised its own funds to purchase its own voting shares amounting to 12,752,994 shares in number, equating to 7.2% of the Bank’s total shareholding.

According to the petitioners, the shares had initially been purchased on the basis that they were to be utilized for the benefit of Seylan Bank employees. The purchased had taken place through six companies set up by the Bank, namely: SEYFEST Ltd., SESOT Ltd., SEYBEST Ltd., SEYSHOP Ltd., ESOTS Ltd. and SOTSE Ltd.

The Bank, the petitioners informed the courts, had thereafter represented to the Colombo Stock Exchange in 2016 that these 12 million shares were in fact not held for the benefit of Seylan Bank’s employees and that the Bank could not dispose of these shares due to pending cases in the District Court.

The counsels representing the petitioners made submissions to the Commercial Court bringing to its attention that, given the above representations made by Seylan Bank to the CSE, the purchase of the material shares by Seylan Bank through the use of its own funds amounted to a direct violation of the provisions of the Companies Act and the Banking Act. 

Counsel Nishan Premathiratne who appeared with Pravi Karunarathne and Nadun Wijayasriwardena on the instructions of Namasivayam Sudharshini on behalf of the petitioners maintained that Seylan Bank should be restrained from voting on the 12 million shares which, according to them, are now being held in violation of the law. As a substantive relief, the Petitioners further sought to prevent Seylan Bank from continuing to hold said shares as it would amount to a continuous violation of both the Companies Act and the Banking Act as the company had violated the laws in purchasing the shares.

High Court Judge Shiran Gunaratne being satisfied on the submissions made on behalf of the Petitioners, granted an interim order preventing Seylan Bank PLC voting on the said 12 million shares held by the Seylan Bank through the six companies at the AGM scheduled to be held on 31 March and/or at any other instance where voting on through the said shares may be required. 

The case will be called on 4 May upon service of notice of the application on the respondents. The Security and Exchange Commission and the Monetary Board of the Central Bank have also been named as parties in this action for the purpose of notice.