HC upholds interim orders against HNB in case filed by Harry J firm

By S.S. Selvanayagam

The Commercial High Court of Colombo on 23 June ruled that the ex-parte interim injunctions against Hatton National Bank be continued until the final determination and dismissed its application to set aside or vary the said order.

The Court earlier made the interim injunction restraining HNB from holding or proceeding with its Extraordinary General Meeting scheduled for 26 October 1016 or any time thereafter for the purpose of obtaining the approval of the shareholders to issue shares to the Asian Development Bank (ADB).

Being aggrieved by the said interim orders, HNB made applications asking for variation or revocation of the interim orders.

Stassen Exports Ltd. and the respondents, including L.U.D. Fernando, Miss D.S.C. Jayawardena as well as Stassen’s interest group namely Milford Exports (Ceylon) and Distilleries Company of Sri Lanka, opposed the application made by HNB.Petitioner Stassen, in its objection, brought to the attention of the Court the Companies Act and Articles of Association wherein a special resolution from the shareholders, whose voting and distribution rights would be affected, is required to be passed prior to such issue of shares. It added that the pre-emptive rights of shareholders are protected in terms of the Articles of Association of HNB.

It was also revealed that a company shall not take any action that would affect the rights attached to shares unless that action has been approved by a special resolution of each interest group.

It contended that where new shares are issued by a company, the existing shareholders should first be offered such new shares in proportion to the existing shareholding.

Petitioner Stassen claimed that they form an interest group and that their interests are identical and that HNB must first offer such shares to the existing shareholders so that the existing shareholders are able to maintain their relative voting and distribution rights.

It claimed that the resolution passed at the board meeting of HNB, an interest group as formed whereby the petitioners and respondents Milford Export (Ceylon) Ltd. and the Distilleries Company of Sri Lanka voting shares in HNB were kept at an aggregate of 10% but the full distribution rights of 18.36% continued to be recognised without any restriction, recognising the full distribution rights and any other rights attached to such shares for the total number of shares by the Stassen interest group in terms of applicable legal provisions.

It stated that however the contents of the circular dated 29 September 2016 sent by HNB were oppressive to the Stassen Group, as the said circular recognises the voting and distribution rights of the voting shareholders and the distribution rights of non-voting shareholders by calling for two separate special resolutions where the Stassen Groups’s 7.91% distribution rights are not represented in either category.

HNB told the Court that the petitioner’s voting rights were curtailed as a sanction by law by the decision of the Monetary Board due to non-compliance of the Banking Act direction.

High Court Judge A.L. Shiran Gooneratne observed that if the interim orders were revoked or set aside before a proper inquiry was concluded, there was a possibility that the petitioner would sustain greater inconvenience and loss than the First Respondent HNB and dismissed its application.