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$100m boost for Kantale sugar company: Court permits issue of shares to foreign investors
View(s):The Commercial High Court of Colombo has permitted the issue of shares of MG Sugar Lanka (Pvt) Limited (MGSL) to its foreign investor, renewing expectations about a direct investment of US$ 100m to revive the Kantale sugar plant and surrounding plantations.
MGSL was incorporated around 2015 as a special purpose vehicle for the revival of the Kantale Sugar Factory. A shareholders’ agreement was signed between MGSL, the Government of Sri Lanka and an investment entity based in Singapore, SLI Developers (Pte) Ltd (SLI), which is connected to UK-based investors Mendel Gluck, Robert Salem and Moussa Salem.
Mr. Gluck and the Salem brothers had engaged K.P. Nagaraja, an Indian national known to have close ties to the former Board of Investment Chairman Upul Jayasuriya, as a promoter to establish the business. Consequently, Mr Nagaraja was made a nominee subscriber shareholder of MGSL holding one share.
Under the shareholders’ agreement, 51 million shares of MGSL were to be issued to the GOSL and 49 million shares to SLI.
However, after it was entered into, there were several disputes between the foreign investors and Mr Nagaraja. There were also allegations of financial malfeasance and non-payment of statutory dues; and accusations that Mr Nagaraja was preventing or delaying the implementation of the provisions of the shareholders agreement.
As a result, on November 6, 2019, the MGSL Board of Directors resolved to inter alia remove Mr Nagaraja from his position as Managing Director and to issue shares to the GOSL and to SLI.
Thereafter, Mr Nagaraja instituted action in the Commercial High Court inter alia challenging the validity of the decisions taken at the said meeting and several interim orders were given ex parte in his favour.
Several respondents who were directors of MGSL, the Singaporean entity SLI and MGSL objected to the said interim orders and also moved court to permit shares to be issued to SLI.
Whilst the said matter was pending, the GOSL appointed two directors from the Ministry of Finance and the MGSL Board of Directors resolved to issue 51 million shares of the Company to the GOSL in terms of the Shareholders Agreement.
An extensive inquiry was conducted before the Commercial High Court. Ikram Mohamed, PC, appearing for Mr Nagaraja, told court that his client had been overseas on November 6, 2019, and that the said Board meeting was held in violation of the shareholders’ agreement. Chanaka De Silva, PC, and Kamran Aziz, who appeared for directors A Thangasamy and Kolita Dharamawardana, supported Mr Nagaraja.
Shivan Coorey, who appeared for the foreign investor Directors Mendel Gluck and Moussa Salem, submitted to court that the actions of Mr Nagaraja were depriving the country of a large FDI. It was in the national interest as well as in the interests of all stakeholders of the Kantale sugar industry to permit the input sought to be made by the foreign investors through SLI.
Faiszer Musthapha, PC, who appeared for SLI submitted to court that his client and the GOSL are the only entities who derive rights under the shareholders’ agreement and that Mr Nagaraja has no status to rely on it to assert his rights.
Chandaka Jayasundere, PC, who appeared for MGSL, submitted to court that Mr Nagaraja does not possess rights under the shareholders’ agreement and that his action does not conform to the provisions of the Companies Act. He also highlighted that, throughout its operational history, MGSL has been bankrolled by the foreign investors.
Harsha Amarasekara, PC, who appeared for the foreign investor Director Robert Salem also highlighted the prejudice caused by Mr Nagaraja’s actions.
N.R. Sivendran, who appeared for the Company Secretaries, submitted to court that the meeting held on November 6, 2019, was in compliance with the Articles of MGSL.
On March 6, 2020, Commercial High Court Judge Sampath Wijeratne made order, inter alia, refusing Mr Nagaraja’s application for interim relief and granting permission to issue shares to the Singaporean entity SLI.
Ikram Mohamed, PC, with Roshan Hettiarachchi instructed by Sanjeewa Kaluarachchi appeared for Mr Nagaraja. Shivan Coorey with Pulasthi Rupasinha, Nilma Abeysuriya and Dinuki Kaluarachchi instructed by Upendra Gunasekara appeared for M. Gluck and M. Salem.
Faiszer Musthapha, PC, and Charaka Jayaratne instructed by Sanjay Fonseka appeared for SLI. Chandaka Jayasundere, PC, and Rehan Almeida instructed by Samararatne Associates appeared for MGSL.
Harsha Amarasekara, PC, and Shahila Wijewardane appeared for R Salem. N R Sivendran appeared for the company secretaries and Senior Deputy Solicitor General Mayadunne Corea with Shehan Soyza SC appeared for the Secretary to the Treasury.