and confusion at Commercial Bank AGM
By Duruthu Edirimuni
Major shareholders of Commercial Bank created palaver at last week’s
Commercial Bank annual general meeting (AGM) and a subsequent extraordinary
general meeting (EGM), with minority shareholders and the staff
representatives denouncing their conduct, while some legal experts
were raising questions about the legality of their actions.
last year’s historical EGM, which concluded within 20 minutes,
last week’s meeting created history taking five hours with
majority shareholder, Harry Jayawardena-controlled DFCC setting
the mood for drama and confusion by seeking to abstain from attending
the EGM, while representatives of Distilleries Company Sri Lanka
(DSCL), Sri Lanka Insurance Corporation (SLIC) and Lanka Milk Foods
(LMF), all Jayawardena-controlled firms, called for an ‘unnecessary
poll’ (as some called it) to vote to select Ernst & Young
The AGM proceeded smoothly in the first two hours with various shareholders
taking to the podium and the Chairman, Mahendra Amarasuriya presiding
over it. The directors were reasonably calm.
Vignarajah, a shareholder who has been advocating good governance
in the bank, spoke first, rapping the regulators about the controlling
stake matters to get to the courts. “Central Bank (CBSL) and
the Monetary Board (MBSL) of Sri Lanka have yet again failed in
their duties, and greatly disappointed the stakeholders –
the civil society had to seek redress at great cost of litigation.
Thankfully, the civil society and stakeholders have intervened,
and the Appellate Courts have held with them in matters of great
public interest and the importance to the investing public when
they restrained DCSL and SLIC together with related parties (including
DFCC), limiting their exercise of voting rights to 10 percent in
total,” he said.
said that the character of DFCC has drastically changed from that
of a government controlled Development Corporation at its inception,
to the now privately controlled, intensely competing bank, with
interests directly conflicting with those of Commercial Bank.
replied saying he too felt there was a conflict of interest but
the board didn’t think so. “There is a conflict of interest
in my view, but the board does not feel this,” he said.
DFCC nominee Directors should have taken cognisance of the above,
and resigned. They should not continue to act in contempt of all
decent principles by remaining on the board,” Vignarajah said,
adding that their continuance on the board should be seriously scrutinised.
“A committee of independent investors and minority shareholders
should go into this subject as soon as possible,” he said.
meeting was smoothly conducted by the chairman and the house was
split over some shareholder comments and Amarasuriya’s witty
The accounts were passed and when the appointment of auditors, which
was the last item in the AGM’s agenda was announced, MLF,
DCSL and SLIC representatives requested a poll. Since they represented
10 percent shareholding, it was decided to have a poll. The house
decided to adjourn the AGM and have the EGM after the polling.
it was questioned by the chairman whether any shareholders disagree
replacing Ford Rhodes with Ernst & Young as auditors, because
none had objected to it earlier. But D.S. Lakmanarachchi (DCSL),
Avanka Herath (SLIC) and R. Attygalle (LMF) insisted on a poll.
The other shareholders were agitated and demanded on what grounds
they wanted a poll. “There is no rationality in this. We want
know why they want a poll,” M.R. Shah, Secretary of the Employees’
said there is no law saying that a shareholder should give reasons,
but after much coaxing by the rest of the house asked whether they
wanted to give any reasons, which they promptly declined. “They
are not prepared to indicate the reasons,” Amarasuriya informed
It was decided that the appointment of auditors, subsequent to the
poll should be held after the EGM, but DFCC director, Nihal Fonseka
informed the Company Secretary and the Chairman that DFCC will not
participate at the EGM.
The regulator had stipulated to appoint a trustee to the employee
share ownership plan (ESOP) the bank has, subsequent to the amendments
to the Banking Act. This has been directed by the Director Bank
Supervision through a letter to the Commercial Bank, which Amarasuriya
showed the house.
“The Central Bank said that Commercial Bank needs a ‘trust’
to have a ‘trustee’. Therefore it was decided by the
board to appoint J.C. Trust Services as the trustee at an EGM. All
matters other than the matters of an AGM should be considered at
an EGM. The appointment of a trustee for the ESOP is one such instance,”
R. Senathirajah, Partner, Julius & Creasy told The Sunday Times
held the EGM to appoint the trustee for the ESOP and to pass a resolution
for the board to increase the limit to a realistic amount when selling
a certain category of properties without shareholder approval. At
present it is at Rs.5 million, which is not a very large amount
when considering today's context,” an employee explained to
The Sunday Times FT.
“Based on the advice that we have received, we did not want
to participate at an EGM where articles are amended,” Nihal
Fonseka, CEO. DFCC told The Sunday Times FT when asked when DFCC
didn’t want the EGM.
Senathirajah said that the effect of DFCC withdrawing from the EGM
was that the stipulated quorum, which is 30 percent of minimum shareholding,
was affected. “The EGM and the AGM had a 38 percent shareholding
and when DFCC withdrew, it reduced the quorum to 28 percent and
the EGM could not be held,” he said.
it was announced by Amarasuriya that DFCC will not be participating
at the EGM, the house erupted with many shareholders speaking simultaneously.
“Mr. Nihal Fonseka, being a director and having agreed at
the board to go ahead with the resolution to amend the articles
is opposing now. He is not acting in the interest of the bank, but
to a hidden agenda. Also he is going against the Central Bank and
what right has he to do this? We denounce the actions of the DFCC,”
Shah later told The Sunday Times FT.
said that the DFCC was advised legally that according to the Banking
Act the loans can be given either to an employee or to a trust.
“Because of this the employees can continue to have the same
scheme as earlier,” he said. However, the members of staff
and the union members were confused as to why he had agreed to the
resolution at the previous board meeting of the bank. “If
that is the case, why did he agree at the previous board meeting,”
Shah asked. “The other shareholders demand the immediate resignation
of Mr. Nihal Fonseka from the board,” he said.
DFCC ‘version’ contradicts with the Director Bank Supervision's
ruling. She is a public official and it is amazing that DFCC goes
against the regulators,” an employee said. “They have
added to the problems by disrupting the meeting and contravening
the Banking Act,” Shah asked.
It was discovered by the Company’s Secretary that DFCC, DCSL,
SLIC and LMF had not marked their attendance. “Since they
have not registered for the EGM, there is no quorum and we cannot
have the EGM,” Amarasuriya announced. Pandemonium prevailed
“Did they sign in for the AGM,” a shareholder demanded.
“Yes,” the Company Secretary answered. “They will
definitely sign the attendance for the AGM, because they want the
dividends,” a shareholder said. Meanwhile the polling took
place and a lot of time was consumed in counting the votes. By this
time, the two directors representing DFCC and the three representatives
of LMF, DCSL and SLIC had left the premises. The AGM reconvened
and the proposal to appoint Ernst & Young as auditors. The Secretary
announced that out of 49 million votes, 47 million had voted in
favour of appointing the new auditors.
“The confusing part is that the parties who had wanted the
poll, implying their discontent in the new appointment had not voted
against the resolution,” an employee said, adding that this
is a clear act of disruption.
have added to the problems by disrupting the meeting,” Shah
said. He requested Amarasuriya to record the fact that he is moving
a no confidence motion on the DFCC directors, because of the violation
of the regulator’s directive, but the chairman declined saying
that it cannot be done. However Shah was persistent.
Amarasuriya requested Senathirajah’s opinion, he said that
a statement to this effect can be recorded, but a motion cannot
be recorded, saying the AGM has been terminated and there is ‘no
other business’ in the agenda.
“This is not what I feel, but what I have to do as an impartial
chairman,” he said, adding that Shah’s statement will