Finance Act raises constitutional issues, top lawyer says
Wide ranging powers to the Monetary Board (MB) in the Finance Business Act of 2011 governing finance companies are raising serious constitutional issues, a top company lawyer said on Friday.
K. Kanag-Isvaran, PC, said provisions in the Act giving powers to ‘directors’ (meaning the MB of the Central Bank) to freeze passports or seize property infringes on the judicial process raises concerns whether this is the due process and infringes on the rule of law.
Interested panellists listen to a member of the audience. Pic by Managala Weerasekera
“Under the Companies Act, that process is vested in the judiciary,” he said. Furthermore Mr. Kanag-Isvaran pointed out another issue that is inconsistent with the constitution, in his view, was the powers to the Minister of Finance under the Act to decide the priority of money claims (in winding up). Under the Companies Act, a court-appointed adjudicator has to ensure the proceeds are equally distributed. “Isn’t there a constitutional issue here? Isn’t there an inconsistency in the law?” he asked.
He was speaking during a public interest seminar organized by public interest activist Nihal Sri Ameresekere’s consultancy firm, Consultants21 on “Repetitive Debacles of Finance Companies” at the Kingsbury Hotel in Colombo. Former Supreme Court judge Priyantha Perera, banker and former public servant Ranjit Fernando and Mr. Ameresekere were the other speakers.
The panel raised issues ranging from the plight of the depositors; the ineffectiveness of the Central Bank (CB); the need to severely punish and jail corrupt directors of finance companies, for respected people to be appointed as directors and cleared under ‘fit and proper’ rules; to wide ranging laws available under the 2011 Act to halt the debacle of finance companies.
Mr. Fernando criticized the new rules of consolidation of the financial sector, reducing the number of finance companies by half, asking “why are good companies being asked to merge?”
He said while trying to protect four or five failed companies, in most cases where the directors have misused funds or mismanaged depositors funds, the good finance companies are also being penalized. He said it was unreasonable to ask companies to increase their capital to Rs. 8 billion in two years, citing how some very good and well-run companies in Chilaw and Kandy would have to close under such, unrealistic capital targets. “Capital requirements should be based on the risk of each company … not across the board,” he argued.
Justice Priyantha Perera, who chaired a presidential commission of inquiry into failed finance companies in 2008, revealed that if the recommendations by this commission had been implemented the debacle of finance companies could have been avoided.
He said the commission had made recommendations to restructure or merge ailing finance companies. It had also proposed to introduce a deposit safety insurance scheme to safeguard the depositors in case of liquidity problems. The report which was handed over to the President (some years back) is yet to be published.
Calling it ‘draconian powers’, Mr. Kanag-Isvaran also said the powers of the MB under the Act could be abused and create a situation where people take the power unto themselves.
“The biggest issue the debacle of finance companies has raised is a creeping infringement of some fundamental rights of citizens,” he said.