Is EPF FR Case Designed To Embarrass SC?
Posted on November 1st, 2012

By Faraz Shauketaly-Courtesy Sunday Leader

Pradeep Kariyawasam

Knowledgeable legal circles are speculating as to whether the recently filed Fundamental Rights (FR) action against the EPF, master-minded by the UNP and petitioned by 11 Trade Unions, is a ploy to embarrass the Supreme Court.ƒÆ’-¡ƒ”š‚  Such a debate has arisen because the petitioners have, knowingly or unknowingly, introduced a matter which is obviously sensitive to the Supreme Court, into the FR plaint.
The point of debate is the submission that has been included under the heading ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-Conflict of Interest, Insider Dealings and Abuse of AuthorityƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚, in which the petitioners have set out just one single example, where they claim that EPF funds have been misused by the EPF by purchasing 5 million shares ofƒÆ’-¡ƒ”š‚  The Finance Company PLC (TFC) at Rs.40 per share. The Petitioners claim that according to the available Annual Reports of the Company, it has been specifically stated by the auditors of the company, that they have doubts as to whether TFC is a ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-going concernƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚.ƒÆ’-¡ƒ”š‚ ƒÆ’-¡ƒ”š‚  It then follows that on that basis, the EPF should not have invested in the shares of TFC, according to the petitioners.

However, stock market watchers point out that the EPF had purchased these shares in TFC at the public share issue, based on a Prospectus in January 2011.ƒÆ’-¡ƒ”š‚  The public share issue was managed and promoted by the Merchant Bank of Sri Lanka, and was carried out under the supervision and approval of the SEC and the CSE.ƒÆ’-¡ƒ”š‚  The shares at the public issue which were issued at Rs.40 per share, were not only subscribed by the EPF, but also by hundreds of other investors, including many market savvy investors like T. Senthilvel.ƒÆ’-¡ƒ”š‚  Hence, it will be very difficult for anyone, including theƒÆ’-¡ƒ”š‚  apparently over-zealous petitioners, to sustain the argument that there has been any impropriety or misuse of funds by the EPF in making their investment in TFC.
The loaded issue however, arises, elsewhere.

As is now well known, in April 2012, several months after the EPF invested in the TFC, the National Savings Bank (NSB), then headed by Pradeep Kariyawasam (the husband of the Chief Justice, Her Lordship, Shirani Bandaranayake) contracted to purchase a large chunk of shares of TFC at a price of Rs.50 per share, (i.e. over 25% of the price paid by the EPF). Worse still, it was alleged that Kariyawasam was trying to do so, without
obtaining the approval of the NSBƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Board of Directors.ƒÆ’-¡ƒ”š‚  Since several newspapers reported this matter, that episode would have been known to the petitioners as well. The fact that this NSB/TFC transaction was being investigated by the Bribery Commission, was also well known. In fact, it has now been reported that the Bribery Commission has just decided to charge Kariyawasam for attempting this deal.

The attempted acquisition of shares of TFC by the NSB led by Pradeep Kariyawasam,ƒÆ’-¡ƒ”š‚  clearly shows that the husband of the Chief Justice was either personally convinced that the TFC shares had an intrinsic value much higher than that at which the shares were then trading, or that he was involved in an attempted acquisition of shares which could possibly be considered as a gross abuse of authority. The latter suggestion has gained credence, particularly because it had been alleged that proper procedures have not been followed by the NSB, which was said to be the reason the Government had ordered that the transaction be cancelled.

In this background, the dilemma that would now face the Supreme Court would be that if they were to grant leave to proceed in the FR case, they would have to face the risk of the controversial NSB/TFC saga being also brought before the Supreme Court.ƒÆ’-¡ƒ”š‚  That would, of course, result in the Chief Justice having to determine, albeit indirectly, as to whether her own spouse was acting in abuse of his authority, when attempting to purchase the shares of TFC at Rs.50 per share, since that matter is bound to be highlighted by the RespondentsƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢ Counsel.ƒÆ’-¡ƒ”š‚  In the alternative legal sources say the Chief justice may well decide to sit this one out. Many precedents govern such a potential situation and the most recent would be the actions brought against Chief Justice Sarath Silva whilst he was still the Chief Justice.

Knowledgeable legal sources whisper that the Opposition Leader, himself an astute lawyer, has been taking a personal interest in this FR action.ƒÆ’-¡ƒ”š‚  As such, as to whether this loaded issue before the Supreme Court was cleverly master-minded and engineered by the 21st Century Fox (possibly surpassing uncle JR, the 20th Century Fox), in order to cause some discomfiture to some members of the highest Court in the countryƒÆ’-¡ƒ”š‚  will be
a matter that would be closely watched by many.

The NSB / TFC transaction was noted for the abrupt manner in which the transaction was halted. Insiders speaking on anonymity have indicated that Pradeep Kariyawasam had a virtual single-minded purpose of mind when it came to carrying out this transaction. The financial advisers he garnered from amongst his coterie of friends had highlighted the potential benefits to the NSB. The advice although sound lacked depth: the Act which govern the National Savings Bank was designed to primarily protect public monies as opposed to creating opportunities for vast speculative trading. The NSB wereƒÆ’-¡ƒ”š‚  actively seeking to better their performance but were regulated to the point that in certain cases ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…” like the investments in shares ƒÆ’‚¢ƒ¢-¡‚¬ƒ¢¢”š¬…” it didnot bode well for the NSB bottom line.

Analysts however point out to the fact that Pradeep Kariyawasam could not possibly have acted unilaterally; it was clear he had the backing of highly placed sources who would provide Kariyawasam with a modicum ofcomfort just in case the weather turned.

Insiders at the NSB have also pointed out that in the preparation of thedraft Minutes of the Board meeting, at which certain members of the Board had expressed dissatisfaction at the purchase of the TFC shares, Kariyawasam was most adamant that a certain tenor and tone be followed by the then Company Secretary. It was not immediately clear whether the former Secretary, who has since gone into (planned) retirement will be
summoned before the Authorities for an explanation under oath of theveracity of these claims.

However the final Board paper would have been signed off by most if not all the Board of Directors. In that light there are growing calls that not only Kariyawasam but other members too must be bought into Court and be held accountable. This was especially essential because the new Companies Act 2007 expects comprehensive accountability from the Board of Directors.

A senior barrister was of the opinion that there would be no question of any embarrassmentƒÆ’-¡ƒ”š‚  for the Supreme Court. ƒÆ’‚¢ƒ¢-¡‚¬ƒ…-This notion of embarrassing the Supreme Court is being put forward and bandied about by those with a lack of depth of these matters and whose vested interests preclude them from making coherent decisions.ƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚

The decision to pursue charges against Kariyawasam is bound to reopen the controversy connected with the NSB/TFC transaction. Details will no doubt once again make for reams upon reams of newsprint and prime air time. The Colombo Stock Exchange despite the much-hyped appointment of yet another SEC Chairman has yet to make any significant increase in value. Nalaka GodahewaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s appointment has done little of significance to the capital market and the former Tourism and Insurance Chief has sought to keep as low a profile as is possible. After GodahewaƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s personal annus horribilis in 2011 brokers say it is unreasonable to expect Godahewa to do anything much other than assist with keeping the ship on an even keel although the winds of controversy have been howling for a while. Many have fallen by the way side and have moved on but others continue to play along the periphery of the market activity. Calls by others for the SEC to play its quiet, behind the scenes regulatory role and to encourage the Colombo

Stock Exchange to exercise innovation, flexibility and be dynamic and pro-active is reaching a crescendo. It is likely that the Minister of Finance may well revisit this conundrum sooner rather than later.

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