• In a landmark judgment Supreme Court rules Parliament has legislative power over Colombo Port City
• Asserts reclaimed land is SL territory
• 5-member bench holds several clauses in Port City Economic Commission Bill inconsistent with Constitution
• SC knocks off discriminatory clauses seeking to curb freedom of movement for Lankans within Port City
• Court says no rationale for providing unconditional and indefinite income tax exemptions for those employed in Port City
• Court rules tax concessions for foreigners within Area of Authority of Port City not applicable outside area
• Power of regulatory authorities such as Monetary Board to continue unimpeded within Port City area
• Amendment to Bill to ensure majority on Economic Commission are Sri Lankans
• Several amendments to be moved at Third Reading of Bill to overcome inconsistencies

By Chandani Kirinde

The Supreme Court in its determination on the Port City Economic Commission Bill has held that the reclaimed land that makes up the Colombo Port City is part of the territory of Sri Lanka in terms of the law and Parliament has legislative power over the area.

In a 63-page ruling, the five-member Bench of the SC also held that several clauses in the Bill were inconsistent  with the Constitution, with three of them requiring a two-thirds majority in Parliament as  well as an approval by the people at a referendum, and suggested amendments to the Bill to overcome these inconsistencies.

The Bench comprised Chief Justice Jayantha Jayasuriya PC and Justices Buwaneka Aluwihare PC, Priyantha Jayawardena PC, Murudu Fernando PC and Janaka De Silva.

In its determination which was announced to Parliament yesterday by Speaker Mahinda Yapa Abeywardena, the Court held that reclaimed land becomes State-owned under the provisions of the State Lands Ordinance which gives authority to the President to reclaim the foreshore or bed of the sea and to erect buildings on any areas of land so reclaimed from the sea and this becomes part of the territory of Sri Lanka by operation of law.

The Court also suggested amendments to the Bill to ensure that Sri Lankans are not discriminated against by the operation of law for the Port City and that their freedom of movement is not curtailed within the area.

The Bill provides for the establishment of a commission empowered to grant registrations, licences, authorisations, and other approvals to carry on businesses and other activities in the Special Economic Zone (SEZ) to be established within the Colombo Port City.

The Court held that the regulatory structure for the Port City set out in the Bill lacked clarity and provided for the exercise of arbitrary power by the commission and thus was inconsistent with Article 12(1) of the Constitution.

The Court was of the view that to overcome the inconsistency with Article 12(1) of the Constitution and ensure that the commission was exercising regulatory powers vested in other regulatory authorities within the Area of Authority of the Colombo Port City, it should always obtain the concurrence of the respective regulatory authorities and the powers of such regulatory authorities within the Area of Authority of the Colombo Port City should continue unimpeded.

The regulatory authorities in terms of the Bill include the Monetary Board of the Central Bank of Sri Lanka, the Registrar General of Companies, the Director General of the Central Environmental Authority, the Controller of Immigration and Emigration and the Director General of Customs.

The Court also said that the Clause in the Bill which required that a levy be paid when leaving the Area of Authority of the Colombo Port City was inconsistent with the Constitution and impeded freedom of movement.

“It is pertinent to observe that Clauses 30(1) and 33(1) of the Bill require a person to obtain prior approval of the Commission in order to visit the Area of Authority of the Colombo Port City. In this regard Court observes that in terms of Clause 40(1) of the Bill, inter alia, a citizen of Sri Lanka is entitled to utilise any retail facilities or services within the Area of Authority of the Colombo Port City at restaurants, cinemas, entertainment facilities, shopping facilities, or parking facilities, upon making related payments, in rupees. 

“The Court holds that when Clauses 30(1), 33(1), 40(2) and 71(2)(1) of the Bill are considered cumulatively, they are inconsistent with Article 14(1)(h) of the Constitution,” the Court said.

The Court also held that there was no rationale for Clauses 35(a) and 35(b) of the Bill which provides that all employment income derived by both non-residents and residents (foreigners and locals) working at the Colombo Port City be free from income taxes.

“…there is no rationale whatsoever for providing an unconditional and indefinite exemption from income tax for persons in employment in the Colombo Port City in the context of most of these employees likely being expatriates. Hence, it was submitted that these clauses in particular and the Bill in general are therefore entirely discriminatory in nature and not in the best interest of the national economy and are inconsistent with Articles 12 and 14 of the Constitution,” the Court held.

The Court also said that Clause 35 which provides that all remuneration to employees shall be paid in the designated foreign currency other than in rupees attempted to exclude the operation of Monetary Act, Banking Act and many other laws and was inconsistent with Articles 12 and 14 of the Constitution.

The Court also said that the provisions in the Bill which enable authorised persons to make use of the exemptions or incentives granted to such authorised persons in engaging in business outside the Area of Authority of the Colombo Port City would be detrimental to the local business community who would not be enjoying such exemptions or incentives.

“If exemptions or incentives given under this Bill are used outside the Area of Authority to the detriment of similar local industries and services, that would infringe Articles 12(1) and 14(1)(g) of the Constitution.”

The Court said that although it did not see any reason to deprive an authorised person engaging in any business outside the Area of Authority of the Colombo Port City, what was obnoxious was the taking advantage of the exemptions or incentives granted to such authorised person in engaging in business outside the Colombo Port City area to the detriment of similar businesses conducted outside such Area of Authority within the territory of Sri Lanka.

“This inconsistency will cease if a new sub-clause is added to Clause 37 of the Bill restraining such authorised person making use of any exemptions or incentives granted under this Bill when conducting business outside the Area of Authority of the Colombo Port City  but within the territory of Sri Lanka,” the Court held.

The Court also ruled that provisions in the Bill that confer the Port City Economic Commission to make rules, codes, directions, or guidelines without Parliamentary control were inconsistent with Article 76 read with Articles 3 and 4 of the Constitution.

The Additional Solicitor General informed the Court that several amendments would be moved to the Bill at the Committee Stage to overcome its inconsistencies. These include an amendment to ensure that the majority of the members of the seven-member Economic Commission are Sri Lankans.

Nineteen petitions were filed challenging the Port City Economic Commission Bill while there were 14 Intervenient Petitioners.

The Attorney General was the respondent in all cases while the Secretary General of Parliament was the first Respondent in two cases.

The Counsel for the State included Farzana Jameel PC ASG, Milinda Gunathilake SDSG, Nerin Pulle SDSG, Dr. Avanti Perera SSC, Suranga Wimalasena SSC, Suren Gnanaraj SSC, and Kanishka de Silva Balapatabendi SSC.

Cabinet gives nod for amendments