The Supreme Court, on Thursday, ruled that the share sale and purchase agreement in the 2003 privatization of Sri Lanka Insurance Corporation (SLIC) is illegal, null and void ab initio (with immediate effect). Furthermore, the sale of SLIC to Milford Holdings (Pvt) Ltd and Greenfield Pacific EM Holdings Ltd is also null and void ab initio. The bench headed by Chief Justice Sarath N. Silva and Justices P. Sripavan and G. Amaratunga, who delivered the judgment, said a primary factor in privatizing SLIC was the need to conform to conditions for loans from the International Monetary Fund (IMF) and the Asian Development Bank (ADB).
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| Petitioner Vasudeva Nanayakkara carried by jubilant employees. Pix by J. Weerasekere |
The fundamental rights petition was filed in 2007 by politician cum public rights activist Vasudeva Nanayakkara who asked the Court to probe the 2003 SLIC privatization transaction and to consider annulling the same, due to several irregularities in the process which caused massive losses to the government and the public. Around 38 respondents were cited in the case including businessman Harry Jayawardena whose companies, Milford Holdings (Pvt) Ltd, Greenfield Pacific EM Holdings Ltd, Distilleries Company of Sri Lanka (DCSL) and Aitken Spence Insurance (Private) Ltd, entered into an agreement on the sale and purchase of the entire issued share capital of SLIC on April 11, 2003.
As stated in the judgment, Milford Holdings Ltd headed by Mr. Jayawardene, part of the consortium of companies that bought the 90% stake in SLIC, will be repaid the Rs.6.050 billion it shelled out for the shares in treasury bonds to be issued in the name of Milford Holdings by the Treasury Secretary with a maturity period of five years. The 90% of SLIC shares will go back to the Treasury.
Furthermore, the judgment stated that the Treasury Secretary will have to submit recommendations to the Court the names for a new Board of Directors of SLIC in two weeks. Until a new Board of Directors has been appointed, the Treasury Secretary will oversee the administrative and executive functions of SLIC. The case will be mentioned on June 18.
The Court stated that its conscience has been shocked by the behaviour of senior public officials. Those mentioned in the petition include former PERC Chairman and former Treasury Secretary P.B. Jayasundera, former Treasury Secretary Charitha Ratwatte, Former Minister of Economic Reform Milinda Moragoda and former Deputy Secretaries to the Treasury Faiz Mohideen and N. Pathmanathan.
Moragoda’s actions wrong
The Court stated that former Minister of Economic Reform Milinda Moragoda had acted without properly appraising the Cabinet or seeking Cabinet approval. The Steering Committee, appointed to facilitate the privatization, had acted with executive authority. The Cabinet was not appraised.
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| Picture shows Chief Justice Sarath N Silva on Wednesday attending one of his last functions before his retirement this weekend, flanked by Deputy Minister of Justice and Law Reform V. Puthrasigamani and Justice N.K. Udalagama in the Superior Court Complex. The Chief Justice presided over some of the biggest cases involving the corporate sector – LMS, Waters Edge and Sri Lanka Insurance. |
The Steering Committee comprised SLIC Chairman Chrishantha Perera, then PERC Chairman P.B. Jayasundera, SLIC General Manager N. Kandasamy, Partner at PricewaterhouseCoopers (PwC) Devasiri Rodrigo, Additional DG at the Department of Public Finance V. Kanagasabapathy, Executive Vice President DFCC Marina Tharmaratnam, DG of the Insurance Board of Sri Lanka Dayanath Jayasuriya, Assistant Governor of the Central Bank Rani Jayamaha and Director PERC Aneela de Soysa. Ms. Tharmaratnam resigned in July 2002 due to a conflict of interest. According to the judgment, the Steering Committee, at its first meeting, prepared a time table for the completion of the privatization without any cabinet approval for the sale of SLIC.
The Court found that the former Deputy Secretary to the Treasury and 6th respondent, N. Pathmanathan’s appointment of the Cabinet Appointed Tender Board (CATB) was in violation of a Cabinet decision as the Cabinet had reserved the right to appoint the CATB. Mr. Pathmanathan had appointed the CATB at the request of a letter written by then PERC Chairman and 7th respondent P.B. Jayasundera. It was noted that the letter had been mysteriously suppressed from Court. Therefore, the CATB had no right to act and all of its actions were found to be ultra vires.
The Court stated that the Technical Evaluation Committee (TEC) and the CATB had manipulated to enable the consortium of companies to come in at the final stages of the process even though the companies had not been evaluated and pre-qualified. Such act was found to be unlawful. These facts were established by the minutes of meetings of the TEC and the consortium’s own documents. The Court said that both the TEC and the CATB had merely acted as rubber stamps. Even though the intention of Cabinet was to get internationally experienced insurers, no publicity was given to attract such renown insurance companies. The Court stated that even at the stage when the TEC had irregularly decided that new parties could join pre-qualified parties, they did not make it internationally known because the arrangement was to manoeuver the consortium.
The Court found that the Cabinet of Ministers had not been appraised of the situation by Minister Moragoda and that the Cabinet approved the sale to the consortium and that the share sale and purchase agreement was signed with strange new companies, those being Milford Holdings (Pvt) Limited and Greenfield Pacific EM Holdings. Both companies had been incorporated after Cabinet approval. Greenfield’s real owner is a mystery but Mr. Jayawardene acted on its behalf. It was also stated in Court that US$10 million had been remitted through Hatton National Bank.
It was DCSL, Aitken Spence & Co. Ltd. and Aitken Spence Insurance (Pvt) Ltd. which signed the share sale and purchase agreement on April 11, 2003 as guarantors, guaranteeing the payment of the purchase consideration to the government by the two purchasers, Milford Holdings and Greenfield. It was Mr. Jayawardene who signed on behalf of the two purchasers and the three guarantors.
Steering Committee
The Court stated that the Steering Committee, though advisory, had carried out executive actions including selecting PricewaterhouseCoopers (PwC) as financial advisor to the government for a fee of US$2 million. The fundamental rights petition made mention that Steering Committee member Deva Rodrigo, was also a partner at PwC, when the company was selected.
The Court stated in the judgment that PwC had only rubber stamped and had unlawfully included the consortium as a new additional party which was accepted by the TEC and the CATB. In contrast, it was noted that the TEC had rejected another party for submitting a bid after the closing time.
The Court found that PwC’s valuation was highly flawed, citing glaring errors in that as had been exposed to Court by former PERC Chairman and 13th respondent Nihal Sri Ameresekere. The Court had attached Mr. Ameresekere’s valuation to the judgment.
The Court faulted PERC for not having secured the chief valuer to carry out an evaluation as required. The market values of valuable property had not been taken into account including the market value of a large portfolio of investments. The Court observed that local or foreign expertise could have been sought if the chief valuer required.
The Court observed that Ernst & Young quoted US$81,000 to prepare the SLIC accounts as internationally accounting standards (IAS) audited accounts but have given non-audited accounts. However E&Y stated that ‘nothing has come to our attention that causes us to believe that the company’s financial statements do not give a true and fair view.’
The Court also found that E&Y had not shown the current assets and current liabilities separately to make the adjustment to the purchase price, by increase or decrease, of the net working capital. The Court stated that E&Y had obtained 16 extensions to forward such computations but failed to do so and the transaction stands not concluded even up to date.
PERC, doing a computation on its own, had demanded a further Rs.1,750 million while the consortium had demanded a refund of over Rs.2,000 million from the government on the purchase price as a result of the accounting confusion. The Court faulted both PwC and E&Y and annulled the entire transaction as illegal, null and void ab initio and directed forthwith the rmoval of the entire board of SLIC and the removal of auditors E&Y as the company’s auditors.
The Court observed that the respondents had failed to submit facts in their statement even though they alleged that the petitioners averments were incorrect. The Court placed on record appreciation of the petitioners efforts in pursuing public action. The Court also observed at the commencement of the delivery of the judgment that the 13th respondent Mr. Ameresekere had specifically stated when filing his affidavit that he supports all averments in Mr. Nanayakkara’s petition and the prayers sought. |
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