Permanent High Court Trial at Bar: The case against Gamini Senarath et al.
Posted on August 19th, 2018

Courtesy: Island

The Permanent High Court Trial at Bar which was set up recently, is to commence hearings with a case involving former President Mahinda Rajapaksa’s Chief of Staff Gamini Senarath. The first B report in this case bearing No. 788/15 was filed before the Colombo Fort Magistrate on 17 April 2015 by the FCID. The title of the case as given in the original B report was “The financial fraud that took place in the transfer of the Hyatt Regency project which belonged to the Ceylinco Group of Companies to the Sino-Lanka Hotels Company”.  At the initial stages, the FCID indeed appears to have been looking for a financial fraud that took place in the transfer of the land at No; 116 Galle Road Colombo 3. The first B report stated that Mr Lalith Kotelawala the head of the Ceylinco Group had said in his statement that in 2003, his Company had obtained this land on a 99-year lease but it had been ‘illegally’ re-acquired by the previous government by a special Act of Parliament and handed over to a Company called Sino-Lanka Hotels and Spa run by the former President’s cronies.

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Chief of Staff Gamini Senarath

After the first B report of 17 April 2015, the FCID filed further reports on this case on 6 July 2015, 16 July 2015, 27 July 2015, 11 August 2015, 23 September 2015 and 17 February 2016. Some of these were for the purpose of obtaining court orders for the release of information about the Directors of Sino Lanka Hotels and Spa from the banks, the Exchange Controller, the Colombo Stock Exchange, the Inland Revenue Department, to obtain the Directors’ assests and liabilities declarations and to prevent those named in the case from leaving the country. The facts of the case which emerge from the proceedings of the Fort Magistrate’s Court are as follows:

Investigation draws a blank

In 2003, the land of an extent over one acre and two roods located at No. 116 Galle Road Colombo 3 had been given on a 99-year lease to Ceylinco Homes International Ltd. The latter company had initiated a BoI approved project to build a hotel called ‘Seylanco Celestial Hyatt’ on this land. Due to various reasons, this project had not been completed and in 2011, the government had reacquired this property under the Revival of Under-performing Enterprises or Underutilized Assets Act No 43 of 2011. On 12 March 2012, the Cabinet had approved a paper to give this property on a 99-year lease to Sino Lanka Hotels and Spa. This was a company that had been formed under the aegis of the Sri Lanka Insurance Corporation (SLIC) in December 2011. The Sri Lanka Insurance Corporation had several subsidiaries which included well known entities like Lanka Hospitals and Litro Gas.

In December 2011, the SLIC formed three new companies – Canwill Holdings as the holding company and two fully owned subsidiaries – Sino-Lanka Hotels and Spa which was to build the Grand Hyatt in Colombo and Helanco Hotels and Spa which was to build the Hyatt Regency in Hambantota. Canwill Holdings received investments of Rs. 8.5 billion from the Sri Lanka Insurance Corporation and Rs. 5 billion from Litro Gas. The Employees’ Provident Fund had through a specially negotiated arrangement invested a sum of Rs. 5 billion exclusively in the Colombo Grand Hyatt project through Canwill Holdings. The Hyatt Regency in Hambantota under Helanco Hotels and Spa, was financed only by the SLIC and Litro Gas which invested Rs. 3.5 billion and Rs. 500 million respectively in that project.

The FCID investigation relating to this case floundered from the very beginning. On 2 May 2016, more than one year into the FCID investigation, when Neil Bandara Hapuhinna one of the Directors of Sino Lanka Hotels and Spa who had been banned from overseas travel, applied for permission to travel abroad, the Magistrate’s Court granted permission on the grounds that even though his name has been mentioned in the case, no evidence of any wrongdoing in the transfer of this property has yet been revealed to Court and since no evidence of wrongdoing on the part of Neil Bandara Hapuhinna has surfaced either, it would be unjust to deprive him of his right to travel overseas.

On 16 June 2017, more than two years after the investigation had commenced, when Piyadasa Kudabalage another director of Sino-Lanka Hotels and Spa who had been banned from travelling overseas sought permission to go overseas, the Fort Magistrate observed that this case was filed in the process of an investigation as to whether any financial fraud had taken place in transferring a land on a 99-year lease to Sino-Lanka Hotels and Spa but it has not yet been revealed how the named person is connected to any offence in this regard. Furthermore the Court observed that investigations had not yet revealed any offence at all related to this case. Therefore the court held that it would be unjust to suspend the foreign travel of this individual for an indefinite period on account of these proceedings.

The pivotal breakthrough

After more than two and a half years since the case began, the FCID filed a further B report on 31 October 2017 with what looked like a breakthrough. The Board of Canwill Holdings had transferred Rs. 500 million worth of shares to Helanco Hotels and Spa on 24 February 2014, and a further Rs. 3,500 million worth of shares on 29 December 2014, bringing the total investment in Helanco Hotels and Spa to Rs. 4 billion. The FCID discovered that Canwill Holdings had credited the money for these shares to the Helanco bank account BEFORE the Board had allocated the shares; in the following manner – Rs. 50 million on 11 February 2014 (ie., 13 days earlier), Rs. 450 million on 19 February 2014 (ie., five days earlier) and Rs. 3,500 million on 26 December 2014 (ie., three days earlier).

The FCID reported to Courts that the Attorney General’s Dept. had informed them that on perusal of these details, the suspects appear to have committed an offence coming under Section 5(1) of the Offences Against Public Propterty Act No. 12 of 1982 which should be read together with Sections 113A, 102 and 388 of the Penal Code. On this basis, the FCID requested the Court to declare Gamini Senarath, Piyadasa Kudabalage and Neil Bandara Hapuhinna as suspects in this case. Thus, the suspects were formally named in this case more than two and a half years after the first B report was filed on 17 April 2015.

Section 388 of the Penal Code is about ‘criminal breach of trust’ when a person who is in any manner entrusted with property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged. Sections 102 and 113A of the Penal Code are about aiding and abetting and conspiring in the commission of an offence. Under Section 5(1) of the Offences against Public Property Act, No. 12 of 1982, any person who dishonestly misappropriates or converts to his own use any movable public property or commits the offence of criminal breach of trust of any movable public property could be punished with imprisonment up to twenty years, and a fine of up to three times the value of the property in respect of which the offence was committed.

The Sri Lanka Insurance Corporation is the sole owner of Litro Gas. SLIC and Litro Gas are the sole shareholders of Helanco Hotels and Spa. The Directors of Canwill Holdings and Helanco Hotels and Spa were the same individuals. To a reasonably well informed ordinary person, it does not appear that a serious offence like criminal misappropriation can occur merely because money was transferred from a holding company to a fully owned subsidiary a few days before the Board of the holding company formally allocated the shares for which that money was paid. Besides lawyers familiar with company law say that in any case, the money has to be paid first before the shares are allocated and that it can’t happen the other way about.

Consequences of the ‘original sin’

The FCID’s attempt in this case from day one was to find an offence coming under the Offences Against Public Property Act. After typing the first 20 lines of the very first B report filed on 17 April 2015, the FCID stated that an offence coming under the Public Property Act had been committed. Yet as we saw earlier, more than two and a half years after the FCID investigation began, the Fort Magistrate’s Court in granting permission for Piyadasa Kudabalage to travel overseas, was saying that there is no evidence of any offence at all that has been committed in this case let alone an offence coming under the Offences Against Public Property Act.

Be that as it may, on the strength of the Attorney General’s opinion that an offence coming under Section 388 of the Penal Code and Section 5(1) of the Offences Against Public Property Act had been committed because Canwill holdings had credited the money to the Helanco Hotels and Spa bank account before the shares were allocated, the CID moved to arrest Gamini Senarath, Piyadasa Kudabalage and Neil Bandara Hapuhinna. The suspects surrendered to Court on 14 November 2017 and were remanded. In considering their bail application, the question before the Magistrate’s Court was whether an entity that is registered as a company under the Companies Act can be considered public property if all or most of its shares are owned by the state.

The Attorney General’s Dept argued that such companies fell into the category of ‘government property’ (anduwe depola). However, the conclusion of the Magistrate’s Court was that though the state had provided the capital for the Sri Lanka Insurance Corporation Ltd, it does not fall into the category of State property because it was registered under the Companies Act. The next question the Court had to consider was that as the Employees’ Provident Fund had invested in Canwill Holdings Ltd, whether the EPF investment fell into the category of State property. The Court observed that in terms of the agreement between Canwill Holdings and the EPF, the Rs.5 billion belonging to the EPF had been invested only in Sino-Lanka Hotels and Spa which was building the Grand Hyatt in Colombo and not in Helanco Hotels and Spa which was building the Hyatt Regency in Hambantota.

Since an alleged impropriety in the transfer of money for shares had been found only with regard to Helanco Hotels and Spa and since the EPF was not involved in that company, the Offences Against Public Property Act did not apply to the suspects. All the suspects were therefore granted Bail by the Magistrate’s Court. Following that episode, the FCID filed another B report on 30 January 2018 stating that they are now conducting investigations into the money that had been spent on the Hambantota project under Helanco Hotels and Spa and requested the Court to issue an order for the banks to release the relevant details.

Readers should note that when this case first began on 17 April 2015, it was about “The financial fraud that took place in the transfer of the Hyatt Regency project which belonged to the Ceylinco Group of Companies to the Sino-Lanka Hotels Company.” But by January 2018, nearly three years after the investigation began, there is no more talk about the Ceylinco Group, or Sino-Lanka Hotels and Spa, or even the land at No. 116 Galle Road Colombo 3 in relation to which the complaint was first made. The investigation now is about the Hambantota project of Helanco Hotels and Spa which never featured in the original investigation.

Moving to Hambantota

Pursuant to this new investigation into Helanco Hotels and Spa transactions, the FCID filed a further B report on 11 May 2018 stating that they had received instructions from the AG’s Dept. to obtain further statements from the suspects into the following: a) Providing a flat at Barnes Place for the Finance Manager of Helanco Hotels and Spa, and obtaining a Dialog TV connection to the flat at the total cost of Rs. 1.9 million. b) Issuing bank drafts amounting to Rs. 48 million through the Helanco Hotels and Spa account to obtain the services of Jaysons Realty on 13 October 2014, and the money being repaid into the Helanco Hotels and Spa account by Piyadasa Kudabalage from his personal funds. c) The issuance of a Credit Card from the Bank of Ceylon to Piyadasa Kudabalage by Helanco Hotels and Spa and whether this was used for personal purposes and why Piyadasa Kudabalage paid Rs. 248,611/= personally towards settling the credit card bill.

The final B report filed in the Fort Magistrate’s Court on 13 June 2018 stated that Board approval had not been obtained when the sum of Rs. 48 million was spent through the the Helanco Hotels and Spa bank account on 13 October 2014 to obtain the services of Jaysons Realty Ltd. This money had been used to purchase a house and two blocks of land in Nuwara Eliya and Piyadasa Kudabalage had reimbursed the Rs. 48 million into the Helanco account in two instalments by 30 December 2014. Even though the credit card issued to Piyadasa Kudabalage by Helanco Hotels and Spa was supposed to be used only for official expenditure it was revealed that on some occasions (yam awasthawaldee) this card had been used to pay for personal expenses as well.

It was also reported that on the instructions given by the AG’s Department, K.L.Lasantha Bandara the Finance Manager of Canwill Holdings and Helanco Hotels and Spa had committed an offence coming under Sections 113A, 102 and 388 of the Penal Code and therefore he should be named as the fourth suspect in this case. That was where the process in the Magistrate’s Court ended.

Any further investigation into this case will no doubt be based mainly on the new allegations that have come up in the investigation into the transactions of Helanco Hotels and Spa. Since the Attorney General’s Dept. holds that the transfer of Rs. Rs. 50 million on 11 February 2014 and Rs. 450 million on 19 February 2014 from Canwill Holdings to Helanco Hotels and Spa, was illegal and punishable under Section 388 of the Penal Code as well as Section 5(1) of the Offences Against Public Property Act; it follows that everything will now be based on this ‘original sin’. Even though a sum of Rs. 3,500 million was transferred in a like manner on 26 December 2014, Helanco Hotels and Spa did not spend any of that money before the government fell. Any money that was spent out of the Helanco Hotels and Spa bank account was therefore a part of the Rs. 500 million that had been transferred in two tranches earlier.

Flat and credit card investigation

Most private companies issue credit cards to their top executives and they are allowed to spend out of this up to a certain limit. Many companies also lease residential properties for the use of their staff and these are hardly matters that should be the subject of a criminal investigation. However, since the money in the Helanco Hotels and Spa bank account is supposed to have been credited to it ‘unlawfully’, the total expenditure of around Rs. 700,000 made through the official credit card issued to Piyadasa Kudabalage and the renting of a flat from Barnes Place at the rate of Rs. 135,000 a month (a total of Rs. 1.8 million for 14 months) could be portrayed as an offence.

However, we learn that this flat was originally taken on rent for the use of foreign experts visiting Sri Lanka to advise on the hotel projects. As the Finance Manager of Canwill Holdings Lasantha Bandara who normally resided in Kurunegala had requested accommodation in Colombo, he had been allowed to use this flat but it had not been assigned to him exclusively.

The sum of Rs. 48 million that had been released from the Helanco Hotels and Spa bank account and used to purchase a property in Nuwara Eliya could also be portrayedn as an offence because this was supposed to be money that had come into the Helanco account ‘unlawfully’. What had happened here is that in 2014, Canwill Holdings held discussions with the UDA about obtaining 15 acres of land in Nuwara Eliya for another Hotel project. On 24 August, a letter was written by Canwill Holdings to the UDA formally requesting land for this purpose. By the third week of September 2014, a meeting was held at the UDA to discuss this project which was by now being referred to as the ‘Oakley Cottage’ project.

On 7 October 2014, Canwill Holdings wrote to the UDA stating among other things that they intend to develop the concept for the hotel in keeping with the existing environment and the UDA Master Plan in Nuwara Eliya together with the needs of upscale leisure accommodation, and that the entirety of the 14 acres of the proposed land would need to be utilized. Canwill Holdings therefore requested the UDA to take the necessary steps to obtain the required valuation, complete the legal process and to hand over the property. On October 14 the UDA wrote back to Canwill Holdings asking for among other things, the development proposal with primary architectural designs, proof of funding arrangement and source of funding, cost estimate of the project etc.

An advance for a House built by Jasons Realty in Nuwara Eliya in close proximity to the intended project site was paid on 14 October 2014 with the intention of making it the project office for the Oakley Cottages development. Oakley Cottages would have been an extension of Helanco Hotels and Spa. After the completion of the project the same premises was to be used to accommodate the senior foreign staff of the hotel. However, it later turned out that the UDA was not able to provide the land for the project and it was put off indefinitely. The Rs. 48 million paid as an advance for the house was reimbursed to the company on 19 and 30 December 2014 in two instalments by Piyadasa Kudabalage who took over the property from the company and the Company did not suffer any loss on account of the advance paid.

The first B report of 17 April 2015 relating to this case states that this investigation was started by the FCID on the basis of a complaint referred to it by the Secretariat of the Anti-Corruption Committee. This Anti Corruption Committee was a Cabinet Sub Committee made up of the following persons: Prime Minister Ranil Wickremasinghe, Ministers Mangala Samaraweera, Champika Ranawaka, Rauff Hakeem and Malik Samarawickrema; parliamentarians Anura Kumara Dissanayake, R. Sampanthan, M. A. Sumanthiran and Democratic Party Leader Sarath Fonseka, Dr. Jayampathy Wickramaratne, and J. C. Weliamuna.

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