OKANDA FINANCE (PVT) LTD v. DIRECTOR ,DEPARTMENT OF SUPERVISION OF NON-BAN

011-SLLR-SLLR-2004-V-3-OKANDA-FINANCE-PVT-LTD-v.-DIRECTOR-DEPARTMENT-OF-SUPERVISION-OF-NON-BAN.pdf


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OKANDA FINANCE (PVT) LTDvDIRECTOR, DEPARTMENT OF SUPERVISION OF NON-BANKFINANCIAL INSTITUTIONS AND OTHERSCOURT OF APPEAL
SALEEM MARSOOF PC, J. (P/CA) AND
SRIPAVAN, J.
CA 1758/02.
JUNE 4,10 AND 29, ANDJULY 7, 28, 2004.
Finance Companies Act, No. 78 of 1988, sections 11, 12 (5), 36 (1), 43 and 48- Petitioner engaged in financial business? – Failure to comply with order ofCentral Bank – Could the petitioner impugn the order without a prayer forquashing of same – What is the information that comes within section 11? -Mala fide – Monetary Law Act,No. 8 of 1949 – section 45 (1) – Secrecy.
The petitioner sought to quash the notices issued by the respondent requiringthe petitioner company to show cause as to why action should not be takenagainst the said company in terms of section 36(1) read with section 11 of theFinance Companies Act, in respect of the failure of the petitioner company tocomply with the request made by the 1 st respondent by her letter P6 for certaindocuments and information and further sought to prevent the 1st respondentfrom conducting any further inquiry with respect to the activities of thecompany. It was the position of the petitioner company that at no time, it wasengaged in finance business.
The petitioner contended that,
No information can be called for in terms of section 11 in that, therespondent has already formed an opinion.
The information called for does not fall with the information that could becalled for in terms of section 11.
Respondent had acted mala fide.
Held:
Despatch of letter P3 (a) does not connote that investigations in terms ofsection 11 (1) of the Finance Companies Act have been concluded or thatan opinion had been formed as contemplated by the last limb of section11 (1). The petitioner company was not in existence at the time P3 (a)
Okanda Finance Ltd. v Director, Department of Supervision of
CANon-Bank Financial Institutions and others61
(Marsoof, J.P/ CA)
was written, as it-was incorporated nearly four months after P3 (a) waswritten and the letter does not concern the petitioner company at all.
P3 (a) was written in the course of and not after the conclusion of theinvestigation into the affairs of Okanda Finance. Opinion contemplated inthe last limb of section 11 (1) could not have been formed at the time P3(a) was written. Therefore the 1st respondent is not barred frominvestigating into the affairs of the petitioner company by reason only ofhaving written P3 (a),
The primary objective of the Finance Companies Act is to provide acomprehensive system for the compulsory registration, control andsupervision of public companies carrying on finance business in SriLanka.
The amount of information and documentation that can be required interms of section 11 (1) is considerably wide. There is no doubt that the 1strespondent is entitled to call for particulars and documents to ascertainthe true position regarding the business activities of the petitionercompany – it is in the interest of depositors that there is a full andcomplete investigation by the 1st respondent as to whether the purportedcredit investment and other forms of investments by the petitionercompany were in fact disguised deposits mobilized from the public.
This is clearly necessary for the purpose of deciding whether thepetitioner was engaged in ‘finance businesses'.
The necessity to request for detailed information is also evident from thefact that section 43 of the Finance Companies Act permits judicial reviewof any determination that may be made by the Monetary Board in termsof section 11 (2).
Allegation of malice has been made belatedly and on frivolous groundsby the petitioner merely to avoid compliance with the law.
“per Saleem Marsoof,. J. (P/CA) –
‘This is an exercise in futility as the petitioner cannot impugn P6 – theletter calling for certain documents and information without a prayer forthe quashing of the order contained in P6 – a ground not pleaded cannotbe taken up in the course of the hearing.
APPLICATION for a writ of certiorari / prohibition.
Cases referred to:
Salomon v Saloman & Co. – 1897 AL 22.
Trade Exchange (Ceylon) Ltd. v Asian Hotels Companies Ltd- 1981 – 1Sri LR 67
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Viswalingam and others v Liyanage and others -1983 2 Sri LR 311.
Ceylon Mineral Water Ltd. v District Judge, Anuradhapura – 70 NLR 312
D. A. Gunaratne v Principal, Godagame Anagarika Dharmapala KanishtaVidyalaya – CA 388/02 CAM 17.07.02.
Appapillai Amirthalingam v Dayaratne Dissanayake – Commissioner ofElections – 1980 2 Sri LR 285.
Dawson Silva v The Monetary Board of the Central Bank of Sri Lanka -1995 – 1 Sri LR 344 at 346.
Benedict and others v Monetary Board of the Central Bank of Sri Lanka. and others – (Pramuka Bank case) – 2003 3 Sri LR 68.
Seneviratne and others v Urban Council of Kegalle and others – 2001 3Sri LR 111-112.
Culasubadhra v The University of Colombo – 1985 1 Sri LR 244 at 264.
J. R. Textiles Industries v Minister of Finance – 1981 2 Sri LR 238 at 286.
Romesh de Silva PC with Hiran de Alwis for petitioner.
P. A. Ratnayake PC Additional Solicitor General with Riad Ameen StateCounsel for respondents.
Cur.adv.vult.
September 22, 2004.
SALEEM MARSOOF, J..P.C. P/CAThis application is connected to CA Application No. 1757/2001filed by Okanda Investments (Pvt) Ltd. (hereinafter referred to as‘Okanda Investments’) which is said to be a “sister company ” of thepetitioner, Okanda Finance (Pvt) Ltd. When these cases weretaken up for. hearing on 4th June 2004, learned Counsel agreedthat both these applications may be for convenience taken up forargument and decided together. The matters in dispute and therelief sought-in these cases are substantially the same, but assome of the issues that arise in this case do not arise in the orderand vice versa, it is considered appropriate to deal with theseapplications in two separate judgments.
Okanda Finance (Pvt). Ltd. (hereinafter referred to as ‘OkandaFinance’) has filed this application seeking to quash by way of
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Okanda Finance Ltd. v Director, Department of Supen/ision of
CANon Bank Financial Institutions and others.
(Marsoof, J.P/CA)^
certiorari, the notices dated 25th September 2002 (P14) and 27thSeptember 2002 (P15) issued by the Director of the Department ofSupervision of Non-Bank Financial Institutions of the Central Bankof Sri Lanka (1st respondent,) requiring Okanda Finance to showcause as to why action should not be taken against the saidcompany in terms of section 36(1) read with section 11 of theFinance Companies Act, No. 78 of 1988 in. respect of the failure of 20Okanda Finance to comply with the request made by the said
Director by her letter dated 12th September 2002 (P6) for certain,documents and information. Okanda Finance has also sought aWrit of Prohibition preventing the respondents from conducting anyfurther inquiry with respect to the activities of the said company.
By letter dated 12th September 2002 (P6), the Chairman /Managing Director of Okanda Finance was required by the 1strespondent, Director of .the Department of Supervision of Non-BankFinancial Institutions of the Central Bank of Sri Lanka, to producethe following information and documents (set out in • the third 30paragraph of P6) relating to the business of Okanda Finance:
full names and addresses of Directors;
business registration number and date of incorporation ofthe Company
names of principal officers of the Company;
list of employees;
list of investors / depositors with dates of acceptance of
money, capital amount of money accepted, rate of interest(or return) agreed and the total amount collected andoutstanding as at 31st March 200240
certified specimens of certificates issued to investors /depositors upon receipt of funds under different schemes;
details of loan schemes,
list of borrowers with amounts granted, dates of granting,rate of interest, and amount outstanding as at 31st March
.2002;
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certified specimens of instruments used in granting loansunder different schemes;
list of investments in treasury bills, bank deposits, or anyother companies and outstanding as at 31st March 2002;
(1T) details of transactions with Okanda Investments (Pvt) Ltd.during the past two years; and
(12) cash book and general ledger for the year ended 31stMarch 2002.
The respondents contend that the 1st respondent was. entitledto call for the above documents and particulars under section 11 ofthe Finance Companies Act, No. 78 of 1988, as subsequentlyamended, which is quoted below:
The Director or any officer authorized by him may requireany person or a body of persons to furnish him with suchinformation as he may consider necessary to ascertainwhether such person or body of persons is carrying on
. finance business, and for this purpose, may require theproduction of, and examine any books or records relating tosuch person or body of persons, and if he is of the opinionthat such person or body of persons is carrying on financebusiness, report such fact to the (Monetary) Board.
If the Board, on consideration of a report under subsection (1) determines that a person or body of persons iscarrying on finance business, it shall require such person or.body of persons to comply with the requirements of the Actwithin a specified period of time, and where it fails to do so,shall have the power to give directions and take such stepsas it considers necessary to safeguard depositors, includingthe power to wind up persons or a body of persons, in whichevent the provisions of section 18 shall, mutatis mutandis,apply.
Any person or. body of persons required to furnishinformation or to produce any books or records undersubsection (1) shall furnish such information or produce suchbooks, records or documents to an officer authorized by theDirector and shall comply with any direction or requirementsmade under subsection (2).
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Okanda Finance Ltd. v Director, Department of Supervision of
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Without prejudice to the generality of subsection (1) theBoard may require any person or body of persons to furnishinformation as may be necessary to ascertain whether anysum of money accepted, borrowed or solicited by suchperson or body of persons is a deposit.
It has been strenuously contended on behalf of Okanda Financethat the 1st respondent wq,s not entitled to call for the informationand documents set out in the third paragraph of P6, as the saidcompany at no time was engaged in finance business. At thehearing of this application, learned President’s Counsel appearingfor Okanda Finance invited the attention of court to the followingdefinition of the phrase ‘finance business’ contained in section 46of the Finance Companies Act:-
“finance business’’ means the business of acceptance of
money by way of deposit the payment of interest thereon and-
the lending of money on interest; or
the investment of money in any manner whatsoever; o.r
the lending of any money on interest and the investment of
•money in any manner whatsoever;
Learned President’s Counsel for Okanda Finance submitted thatin terms of the aforesaid definition, the mere acceptance of moneyby way of interest bearing deposit would not amount to engaging in‘finance business' unless it is accompanied by lending money oninterest, or investment or money, or both. Learned President’sCounsel contended that Okanda Finance had not taken any moneyon deposit from the public, and that the investment made by its“sister company” Okanda Investments (Pvt) Ltd. in its businessactivities would not bring the business of Okanda Investments orOkanda Finance within the definition of ‘finance business’ as thesetwo companies ought to be treated as one entity. LearnedPresident’s Counsel has submitted that there is in fact no violationof the Finance Companies Act when the two companies are takentogether.
At the outset it may be stated that for the disposal of thisapplication it is not necessary for this court to decide or express any
go
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opinion as to whether Okanda Investments and Okanda Financeshould be treated as a single entity for purposes of the Finance 120Companies Act. No doubt the principle in Salomon v Salomon &
Co 0) (which has been followed by our courts in decisions such asTrade Exchange (Ceylon) Ltd. v Asian Hotels Corporation Ltd. (2)and Vlsvalingam and Others v Liyanage and Others (3) as well asthe line of correspondence between Okanda Finance and the 1strespondent will militate strongly against such a contention.However, this is a matter that needs to be investigated by the 1 strespondent for the purpose of forming an opinion as to whetherOkanda Finance is carrying on finance business and if so,reporting the matter to the 2nd respondent Monetary Board as 130contemplated by section 11(1) of the Finance Companies Act.Indeed, the position of the respondents is that the question whetherOkanda Finance.is engaged In finance business or not is one thatcan only be decided after the investigation commenced in terms ofsection 11 of the Finance Companies Act with respect to OkandaFinance is concluded. However, the 1st respondent has set out inparagraph 9(d) of her affidavit dated 30th January 2003 theevidence that has hitherto been collated in the course of theinvestigation, and claims that the said evidence suggests thatOkanda Finance was at the relevant time engaged in finance 140business.
It is necessary to outline the circumstances that culminated inthe letter dated 12th September 2002 (P6) and a similar letter of thesame date produced in the connected case CA Application No.1757/2002 marked P6 being written by the 1st respondent, Directorof the Department of Supervision of Non-Bank Financial Institutionsof the Central Bank of Sri Lanka to Okanda Investments andOkanda Finance calling for certain information and documents setout in the third paragraph of the said letter. It is in evidence that theDepartment of Supervision of Non-Bank Financial Institutions of the 150Central Bank of Sri Lanka headed by the 1st respondent hadreceived several petitions from members of the public complainingthat certain advertisements have been published in thenewspapers by Okanda Investments inviting the public to depositmoney with the said company. Copies of the petitions dated 1stJuly 1998, 18th August 1998 and 12th November 1998 were
Okanda Finance Ltd. v Director, Department of Supervision of
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produced in CA Application No. 1757/2002 marked respectively1R1(b) and 1R1(c) along with the affidavit of the 1st respondentfiled in that case. To 1R1(a) was also annexed a copy of anadvertisement allegedly published by Okanda Investments invitingthe public to deposit money with it under a ‘Credit InvestmentScheme' in-return for a payment of 24% interest per annum, The1st respondent’s Department has also taken note of certainadvertisements to the same effect that appeared in the SundayObserver of 15th August 1999 and 4th June 2000 markedrespectively 1R2(a) and 1R2(b). The 1st respondent’s Departmentalso managed to obtain a specimen certificate issued by OkandaInvestments in acknowledgment of such a credit investment a copyof which has been tendered to court marked 1R2(c) in theconnected case.
It is also in evidence that Okanda Investments submitted to the1st respondent the Financial Statements for the years 1998/1999,1999/2000 and 2000/2001 produced in the connected case markedrespectively 1 R3(a),1 R3(b) and 1R3(c) relating to OkandaInvestments during the course of investigations conducted by thesaid Department. It appeared from the aforesaid FinancialStatement marked 1R3(a) that Okanda Investments owed theaggregate sum of Rs. 5,381,502/- to about 56 persons as at 31stMarch. 1999. This liability was listed under the category “Non-Current Liabilities” at page 12 of the Financial Statements for theyear 1998/1999 marked 1R3(a). The sums so owed ranged fromRs. 10,000/- to Rs.400,000/-. It is possible that these sums mayhave been deposited by the public in Okanda Investments underthe aforesaid ‘Credit Investment Scheme’ in response to theaforesaid advertisements. In the Financial Statements marked1 R3(b) the aforesaid “Non-Current Liabilities” appears to havebeen renamed as "Credit Investment” whilst in the Balance Sheet itcontinues to be identified as "Non-Current Liabilities”. It appearsfrom Note 7 of the Balance Sheet as at 31st March 2000 containedin the Financial Statements marked 1R3(b) that the number ofpersons suspected to have deposited money with OkandaInvestments under the said ‘Credit Investment Scheme’ hasincreased to 100, and the aggregate sum of money suspected to
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be deposits appears to have increased to 9,886,504/-. However theBalance Sheet of Okanda Investments as at 31st March 2001contained in the Financial Statements marked 1R3(c) do notcontain any reference to the money suspected to have beendeposited.Instead it identifies the sum of Rs.9,886,504/- as aliability to Okanda Finance (Pvt) Ltd. as at 31st March 2000.Learned Additional Solicitor General in the course of his 200submissions pointed out that if this sum of Rs. 9,886,504/- was theaggregate of the monies originally deposited by the public underthe so called ‘Credit Investment Scheme’, that amount should havecontinued to be reflected as a liability of Okanda Investments to thedepositors in question and it could not represent money owed to' Okanda Finance. Learned President’s Counsel in the course of hisreply submitted that this sum reflected investments by OkandaInvestments (Pvt) Ltd. in Okanda Finance. I am of the view .that ifthat be the correct position, the sum of Rs. 9,886,504/- should havebeen shown as an asset in the accounts of Okanda Investments 210instead of as a liability. In addition the aggregate of the sum owedto the respective depositors should have continued to be reflectedas a liability in the accounts of Okanda Investments. I am of theopinion that the aforesaid submission made on behalf of OkandaInvestments and Okanda Finance cannot be reconciled with theFinancial Statements of Okanda Investments mentioned above.Furthermore the Financial Statements marked 1R3(c) do notprovide any explanation as to what happened to the aggregate sumof Rs. 9,886,504/- owed by Okanda Investments to the saiddepositors. The omission of this information in the Financial 220Accounts in question is a cause for concern. Furthermore OkandaFinance was only incorporated on 30th October 2000 and thereforecould not have been a creditor to the Okanda Investments as at31st March 2000 as reflected in the aforesaid Financial Statementsmarked 1 R3(c) this in fact raises serious concerns with regard tothe accuracy of the accounts furnished by Okanda Investments.There can be no doubt .that the aforesaid transactions have to be• investigated further as they involve funds deposited by the public.
It is also in evidence that Okanda Finance published severaladvertisements in newspapers marked P12(a), 1R1(a) and 1R1(b) 230
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as well as a brochure a copy of which is marked 1R1 (c) solicitingdeposits of money from the public under a ‘Credit InvestmentScheme’ in return for payment of interest varying from 13% perannum for investments of 3 months up to a maximum of 24% for aperiod of 5 years. Concern has also been expressed regardinginstitutions that are alleged to be accepting deposits includingOkanda Finance; at certain meetings of the Finance SectorReforms Committee held on 24th July 2002 and 21st August 2002as evidenced by the minutes marked 1 R2(b) and 1 R2(c). It is alsoin evidence that the Department of the 1 st respondent had received 240a communication dated 29th August 2002 marked 1 R2(a) from theRegistrar of Companies stating that Okanda Finance was engagedin taking deposits from the public in the form of ‘Credit Investment’.
It appears from the “draft” Financial Statements of Okanda Financefor the year ending 31st March 2001 and 31st March 2002 markedrespectively P10 and P11 that such credit investments amounted toRs. 18,524,010/- at 31st March 2001 and Rs. 50,295,010/- as at31st March 2002. However unlike in the case of OkandaInvestments, the said accounts do not indicate the names or theamounts provided by the said investors who are suspected to be 250depositors. Similarly Okanda Finance has also described themanner in which the ‘Credit Investments’ would be utilised in thebrochure marked 1R1(c). The said brochure states that the fundswould be. reinvested in investments involving Hydro PowerProjects, Property Development Projects, Teak Plantation Projects,Forestry Projects, Agricultural Projects, and Real Estates Business.While the possibility that Okanda Finance utilised funds sodeposited by the public in the aforesaid projects cannot be ruled outwithout a proper investigation, it appears from P10 and P11 thatOkanda Finance has invested sums of Rs.17,496,510/- and Rs. 26025,215,852.25 respectively in Okanda Investments. There can beno doubt that the aforesaid transactions have to be investigatedfurther as they involve funds deposited by the public.
Although Okanda Investments and Okanda Finance have intheir letters dated 26th August 2002 marked P5 suggested thatthere was a distinction between ‘credit investments’ and deposits,and in paragraph 8 of its petition filed in this court Okanda Finance
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admits that it “borrows monies” but suggests that is not the sameas accepting money by way of deposits, at the hearing of thisapplication learned President’s Counsel appearing for Okanda 270Investments and Okanda Finance did not persist with thesesubtleties. In any event, in my view, the question whether theaforesaid credit investments were in fact ‘deposits’ for the purposesof the definition of ‘finance business’ contained in section 46 of theFinance Companies Act is a matter that' requires furtherinvestigation. I am however of the opinion that the aforesaidmaterial constituted reasonable and probable cause for theDepartment of Supervision of Non-Bank Financial Institutions tosuspect that Okanda Investments and Okanda Finance had invitedthe public to make deposits with the said company in return for 280payment of interest payable annually. It is important to note that theaforesaid definition of ‘finance business’ requires that moneyaccepted as depbsits should be utilised in one of the wayscontemplated by paragraphs (a), (b) or. (c) therein. In this regard itwas submitted on behalf of Okanda Investments and OkandaFinance that the 1st and 2nd respondents treated both OkandaInvestments and Okanda Finance as one legal entjty and that. therefore transactions between the two companies cannot amountto ‘finance business’. While this is a matter that is underinvestigation and it may be premature to come to any conclusions 290in this regard at this stage, it is also possible that OkandaInvestments and Okanda Finance have lent or invested the fundsdeposited by the publjc to other persons.These too are matters stillunder investigation as evident from the information and documentsrequested from, these companies by P6.
The legislative scheme of the Finance Companies Act asrevealed from ah examination of sections 11(2) and 43 of the saidAct provides for judicial review .of the determination of the 2ndrespondent Monetary Board only at a subsequent stage. It istherefore clearly premature for this court to go into the question 300whether Okanda Finance is engaged in finance business’ at astage of the investigation when the Company has just been calledupon by the Director of the Department of Supervision of Non-Bank-Financial Institutions to provide certain particulars and documents
qa Okanda Finance Ltd. v Director, Department of Supervision of 71
Non-Bank Financial Institutions and others
(Marsoof, J.P/CA)
in terms of section 11.(1) of the Act. Learned Additional SolicitorGeneral relied on the decisions of our courts in Ceylon MineralWaters Ltd. v District Judge, AnuradhapuraW and D.A.Gunasekerav the Principal Godagama Anagarika Dharmapala KanishtaVidyalayd5) for the proposition that prerogative relief by way ofcertiorari and mandamus are not granted prematurely. In AppapillaiAmirthalingam v Piyasekera, Commissioner of Elections <6) theCourt of Appeal refused to intervene in an election related matteras it was premature to do so. In any event, at this stage it is notnecessary for this court to decide or express any opinion as towhether Okanda Finance was or is in fact engaged in financebusiness, the only issue for determination by this court beingwhether the notices dated 25th September 2002 (P14) and 27thSeptember 2002 (P15) issued by the 1st respondent ought to bequashed on the. basis that the 1st respondent was not entitled tocall for the information and documents set out in the thirdparagraph of the letter dated 12th .September 2002 marked P6. Iam of the opinion that there is overwhelming evidence to justify theaction of the 1st respondent in calling for the aforesaid informationand documents from Okanda Finance. I also note that OkandaFinance has not sought the intervention of this court to quash theletter dated 12th September 2002 marked ‘P6 This letter wasclearly in the custody of Okanda Finance at the time this applicationwas filed, but the said company had opted not to ask for any reliefto have it quashed by certiorari.
At the hearing of this application, learned President’s Counselfor Okanda Finance launched a three pronged attack on the vires
of the 1st respondent. The submissions of learned President’sCounsel in this regard was encapsulated in paragraph 4 of thewritten submissions which were filed subsequently in the followingterms:-
no information can be called for in terms of section 11 of theaforesaid Act, in that the respondent has already formed anopinion;
in any event, the information called for by P6 does not fallwithin the information that could be called for in terms of
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section'll; and
the respondent has at all time acted mala fide.
For the contention that the 1st respondent has already formedan opinion in regard to the question whether Okanda Financecarried on finance business, and is therefore not entitled toinvestigate this matter any further, Okanda Finance relied on theletter dated 5th July 2000 marked P3 (a) sent on behalf of the 1strespondent to the Director General of Commerce. This letterappeared to be a reply to a letter dated 3rd July 2000 addressed tothe 1st respondent by the Director General of Commerce, a copy of 350which had not been produced by any of the parties with theirpleadings. In the course of the hearing on 29th June 2004 when thelearned Additional Solicitor General appearing for the respondentswas on his feet, questions arose regarding the context in which theletter dated 5th July 2000 marked P3 (a) had been despatched.Learned Additional Solicitor General graciously agreed to tender tocourt a copy of the letter dated 3rd July 2000 referred to in P3 (a),along with an appropriate motion filed with adequate notice tolearned President’s Counsel for Okanda Investments and OkandaFinance to enable him to address court, if necessary, in regard to 360this document, in the course of his reply to the submissions of thelearned Additional Solicitor General. Accordingly, a certified copy ofthe letter dated 3rd July 2000 was tendered to court with the motiondated 20th July 2004. It was stated in the said motion that therewere two annexures to the said letter which were respectively, acopy of the letter dated 17th September 1999 sent by the ChiefLegal Officer of Okanda Investments to the Assistant Director ofCommerce and a letter 19th January 2000 sent by the DirectorGeneral of Commerce to the 1 st respondent, a copy of the formerbeing attached to the latter, and the letter expressly referred to in 370the said letter dated 3rd July 2000,and the said two annexures toowere tendered to court. The letter dated 17th September 1999 hadbeen written on behalf of Okanda Investments to the AssistantDirector of Commerce in pursuance of an application made by thesaid company to be enlisted as a Credit Agency in terms of theMortgage Act. In the said letter the Chief Legal Officer of OkandaInvestments had expressly stated that* the main fields of business
QA Okanda Finance Ltd. v Director, Department of Supervision of 73
Non-Bank Financial Institutions and others
(Marsoof, J.P/CA)
of Okanda Investments are–
Money lending;
Accepting Credit Investments;380
Providing Working Capital, as a Credit Agency, to BusinessEstablishments;
Providing Credit Facilities for Development Projects; and
Hire Purchase business in movable and- immovableproperty.
It would appear that this disclosure prompted the Director-General of Commerce by his letter dated 19**1 January 2000 toinquire from the 1st respondent whether the approval of theCentral Bank was required to carry on the aforesaid business,and as there was no reply from the 1st respondent, the letter 390dated 3rc* July 2000 marked P3(a) was sent as a reminder. Inview of the importance of this letter, it is quoted below in full:-
DEPARTMENT OF COMMERCE
P.O.Box 1507, 4th Floor, Rakshana Mandiraya, Colombo 2,
Sri Lanka
My No : COM/MD/7-V3rd July, 2000.
Director
Department of Supervision of Non-Bank Financial Insts.
41 Renuka Building,
Janadhipathi Mawatha '400
Colombo 1
CENTRAL BANK APPROVAL FOR FINANCIAL SERVICES-OKANDA INVESTMENTS (PVT) LTD
Further to our letter dated 19th January, 2000, on the abovesubject, (copy attached).
It would be greatly appreciated if you will inform us whether theapproval of the Central Bank is required for this company to carry
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out its activities indicated in their letter addressed to us dated 17thSeptember, 1999, a copy of which is also attached herewith foryour reference.410
As this application has been pending for a long time for seekingthe approval as a Credit Agency under the Mortgage Act, your earlyreply will be highly appreciated.
Thank you for your'kind co-operation.
Yours faithfully,
Sgd/
D W JINADASA
Assistant Director of Commerce
for Director-General of Commerce
It was.in response to this letter that the letter dated 5th July 2000 420
marked P3(a) had been sent on behalf of the 1st1 respondent to theDirector-General of Commerce. This letter was as follows :-
DEPARTMENT OF SUPERVISION OF NON-BANKFINANCIAL INSTITUTIONS
No. 41 Janadhipathi Mawatha, Colombo 1
My No : 24/01/024/0003/001
Your No : COM/MD/7-X5th July, 2000.
Atten : Mr D W JinadasaAssistant Director
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Director-General of Commerce,
Ministry of Internal & InternationalCommerce & Food,
Department of Commerce,
4th Floor, Rakshana Mandiraya,
Colombo 2
Dear Sir,
CENTRAL BANK APPROVAL FOR FINANCIAL SERVICES-OKANDA INVESTMENTS (PVT) LTD
Okanda Finance Ltd. v Director, Department of Supervision of
CANon-Bank Financial Institutions and others5
(Marsoof, J.P/CA)
Reference : Your letter dated 3rc* July 2000, on the abovesubject.
One of the main fields of business of the company is stated tobe acceptance of credit investments. However, an investigationconducted by our Department revealed that the company isengaged in the business of acceptance of deposits from the publicon interest and lending of money on interest. Such a company isrequired to obtain registration from the Central Bank under theprovisions of the Finance Companies. Act, No. 78 of 1988 asamended by the Act, No. 23 of 1991.
The Central Bank is contemplating legal action against thecompany for violation of the provisions of the Act.
Yours faithfully
Sgd/
for Director
Learned Additional Solicitor General has emphasised that P3(a)was only a response from the office of the 1st respondent to theletters dated 19th January 2000 and 3rd July 2000 addressed tothe 1st respondent’s predecessor in office by the Assistant Directorof Commerce seeking certain clarifications in regard to thedisclosures made by Okanda Investments in its letter, dated 17thSeptember 1999. He submits that the special context in which theletter marked P3.(a) was written supports the position that it was notintended to be an opinion referred to in the last limb of section 11
of the Finance Companies Act. He has also pointed out thatprior to the writing of the letter marked P3(a), the 1st and 2ndrespondents had received several petitions alleging that OkandaInvestments and Okanda Finance were accepting deposits fromthe general public. He submitted that the 1 st and 2ndrespondentsthemselves had noticed some newspaper advertisements duringthis period, and it was in these circumstances that investigations inregard to the activities of Okanda Investments and OkandaFinance were commenced by 1 st and 2nd respondents.
I cannot agree with the submission of the learned President’sCounsel for Okanda Finance that the despatch of the letter dated
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5th July 2000 marked P3(a) precludes the 1st respondent fromcalling for information from Okanda Finance in terms of section 11of the Finance Companies Act. Iri my view, the despatch of the saidletter does not connote that investigations in terms of section 11(1)of the Finance Companies Act have been concluded or that anopinion had been formed as contemplated by the last limb ofsection 11(1) of the said Act. In fact Okanda Finance was not in 480existence at the time P3(a) was written as it was incorporated onlyon 30th October 2000, nearly 4 months after P3(a) was written andthe letter does not concern Okanda Finance at all. It is manifestfrom letter marked P6 that the information contemplated in the firstlimb of section li (1) was only requested from Okanda Financeafter P3(a) was written. It is therefore plain that P3(a) was writtenin the course-of, and not after the conclusion of, the investigationinto the affairs of Okanda Investments. In any event, the opinionreferred to in the last limb of section 11(1) is ordinarily formed aftercalling for the requisite information from the person or a body of 490persons being investigated in terms of the first limb of sectionll (1).Thus, to my mind, the opinion contemplated in the last limb ofsection 11(1) could not have been formed at the time P3(a) waswritten.
It is significant to note that the 1st respondent is required tosubmit a report to the 2nd respondent Monetary Board immediatelyafter the opinion referred to in the last limb of section 11(1) isformed. The sectipn contemplates the opinion to be formed and thereport to be submitted personally by the Director of Non-BankingSupervision. It is apparent from section 11 (2) that the report should soocontain considerable details to enable the 2nd respondentMonetary Board to make its determinations as contemplated bythat provision. Thus full, particulars regarding the number ofdepositors, their identities, the quantum of their deposits, themanner in which the funds so received have been utilised,dispersed or invested have to be included in the report. Only adetailed report with all material particulars will enable the 2ndrespondent to make an informed decision with a view ofsafeguarding the interest of the public who may have depositedmoney with Okanda Finance. There is no provision in the Act 510analogous to section 48, providing for the delegation of the
CA
Okanda Finance Ltd. v Director, Department of Supervision of
Non -Bank Financial Institutions and others
(Marsoof, J.P/CA)
77
functions of the Director of Non-Banking Supervision under section11 to a subordinate officer such as the one who has signed theletter marked P3(a). Although the said letter had been written on5th July 2000 neither the officer who signed P3(a) nor the 1strespondent has submitted any report in terms of the last limb ofsection 11(1) to the 2nd respondent Monetary Board. I therefore,have no difficulty in finding that the 1st respondent had not formedan opinion as contemplated by the last limb of section 11(1) of theFinance Act at the time of writing of P3(a). Even if an opinion had 520been formed, it concerned Okanda Investments, and not OkandaFinance.
It is evident from the Financial Accounts marked 1 R3(a) to (c)that Okanda Investments has had transactions with OkandaFinance involving certain funds which the 1st respondents hadreasons to suspect had been raised by Okanda Investments frommembers of the public as deposits. In fact, in the course of oralsubmissions, learned President’s Counsel was heard to say thatthe transfer of funds from Okanda Investments to Okanda Financedid not amount to an investment as they formed a Single entity. This 530is an important argument which the 1 st respondent has to carefullyconsider before making her report in terms of section 11(1). In factthe information called for by items (1),(2),(3),(4) and (11) in P6 arein my opinion extremely crucial for the 1st respondent in coming toher findings on this issue. Therefore, I am of the opinion that itwould be neither reasonable nor prudent to regard theinvestigations relating to Okanda Investments as well as OkandaFinance as having been brought to a culmination by reason of thewriting of P3(a). In my opinion, the 1st respondent is not barredfrom investigating into the affairs of Okanda Investments or Okanda 540Finance by reason only of having written P3(a).
Learned President’s Counsel for Okanda Finance has alsosubmitted that the information called for by the letter dated 12thSeptember 2002 (P6) does not fall within the information that couldbe called for under section 11 of the Finance Companies Act. It wassubmitted on behalf of Okanda Finance at the hearing of thisapplication that section 11(1) only permitted the respondents to askOkanda Finance the following four questions: (a) Whether the
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petitioners accepted money by way of deposits? (b) Whether thepetitioner paid interest on such deposits?(c) Whether the 550petitioners lent the money on interest? (d) Whether the petitionersinvested the money? It was further submitted on behalf of OkandaFinance that the information requested in the letter dated 12thSeptember 2002 (P6) and the letter dated 29th August 2002 (P7)were of much greater detail than that which was permitted bysection 11(1) of the Finance Companies Act.
In this context it is necessary to stress that the primary objectiveof the Finance Companies Act is to provide a comprehensivesystem for the compulsory registration, control and supervision ofpublic companies carrying on finance business in Sri Lanka. As 560Kulatunga, J. observed in the course of his judgment in DawsonSilva v The Monetary Board of the Central Bank of Sri Lanka andAnother;(7) “ The main object of the Act appears to be to safeguardthe interests of depositors” The said Act confers on the Director ofthe Department of Supervision of Non-Bank Financial Institutions,which is the Department in the Central Bank to which the subject offinance companies is assigned, and the Monetary Board important .powers and functions with respect to finance companies. In termsof section 11(1) of the Act, the said Director or any officerauthorized by him may require any person or a body of persons to 570furnish him with such information as he may consider necessary toascertain whether such person or body of persons is carrying onfinance business. It is also relevant to note that in terms of section12(5) of the Act, the Director may, where he considers it necessaryto ascertain the true condition of the affairs of a finance companyand to ascertain whether such finance company is carrying onbusiness in a manner detrimental to its present or future depositors,by notice in writing require any person whom he considers to haveinformation relating to the finance company, to furnish suchinformation to him or to any officer or auditor authorized by him. 580Section 12(6) of the Act provides that for the purpose ofascertaining the true condition of the affairs of the finance company,the Director may if he considers necessary also examine thebusiness of any company which is or has at any relevant time beena holding company or subsidiary company of the finance companyin question, or any subsidiary of a holding company of that finance
QA Okanda Finance Ltd. v Director, Department of Supervision of 79
Non-Bank Financial Institutions and others
(Marsoof, J.P/CA)
company, or an associate company of that finance company.
I have no difficulty in agreeing with the contention of the learnedAdditional Solicitor General that the ambit of information anddocumentation that can be requested in terms of sectioh 11(1) ofthe Finance Companies Act is considerably wider than the confinesof the aforesaid four questions. In this regard it is relevant to notethat prior to the despatch of P6, the 1 st respondent requested theOkanda Finance by item (3) in P4 to furnish documentationregarding the funds that Okanda Finance mobilized from the public.Okanda Finance in paragraph 3 of its letter dated 26th August 20Q2marked P5 refrained from denying that it mobilized funds from thepublic and annexed to the said letter specimens of the financialinstruments and other documents used by Okanda Finance inconnection with its ‘Credit Investments Scheme’. A comparison ofthis letter with the letter of the same date sent by OkandaInvestments to the 1 st respondent and annexed to the affidavit ofthe 1st respondent filed in CA 1757/2002 establishes very clearlythat Okanda Finance was at least honest enough to admit that itmobilized funds from the public. However, as would appear fromthe Minutes of the Meeting which the 1st respondent had on 26thAugust 2002 with representatives of Okanda Investments andOkanda Finance marked 1R4, M.B. de Silva representing bothcompanies denied accepting deposits and took up the position thatthey only accepted ‘Credit Investments’ and ‘Green Reward TeakPlantation Project Investments’. In paragraphs 6 to 9 of its petition,Okanda Finance has categorically pleaded that it does not carry onfinance business, but only borrows monies from Banks and otherfinancial institutions. It has also expressly stated that it has noinvestments made by utilizing monies of depositors. Some of thesepositions are clearly contradicted by the evidence in the possessionof the 1st respondent to which reference has already been made,and there is no doubt that the 1st respondent is entitled to call forparticulars and documents to ascertain the true position regardingthe business activities of Okanda Finance. In particular it is in theinterest of depositors that there is a full and complete investigationby the 1st respondent as to whether the purported ‘CreditInvestments’ and the other forms of investments invited by OkandaFinance were in fact disguised deposits mobilized from the public.
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600
610
620
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This is clearly necessary for the purpose of deciding whetherOkanda Finance was engaged in ‘finance business’ within themeaning of the Finance Companies Act.
Learned President's Counsel for Okanda Finance alsosubmitted that the 1st respondent is only permitted to ask whetherthe Okanda Finance invested the money it had in its hands, and is 630not entitled to request for further information regarding the natureof the investments. It was contended by learned President’sCounsel for Okanda Finance that the 1st respondent has requestedunnecessary details about their investment in terms of item (10) inP6.1 consider this an unrealistically narrow view of the ambit of thepowers of the respondents. In paragraph 9 of petition filed in thiscase by Okanda Finance it has been specifically averred that thesaid company does not invest money received as deposits.However, there is strong evidence as already noted which suggeststhat Okanda Finance may be directly investing money accepted as 640deposits. In these circumstances the 1st respondent necessarilyhas to investigate the affairs of Okanda Finance in greater detail soas to determine whether such investments were made withdeposits received from the public, it is clearly inadequate to closethe investigation with the negative position taken up by OkandaFinance to the single question as to whether it invested moneydeposited by the public. It is clear that even the other items ofinformation called for by P6 have been requested with the object ofascertaining whether Okanda Finance was engaged in ‘financebusiness’. It is important to remember that the 1st respondent is 650required to present a report to the 2nd respondent Monetary Boardin terms of section 11(1) of the Act after the investigation isconcluded. The report to the 2nd respondent would requireconsiderable details so that the 2nd respondent could make thedetermination referred to in section 11(2) of the Act. Morespecifically in terms of section 11(2) the 2nd respondent isempowered to take steps to safeguard the interest of depositors.This is the primary objective of investigation and the otherproceedings taken in terms of section 11. The required informationhas to be gathered through the investigation referred to in section 66011(1). This is because section 11 does not make express provision
QA Okanda Finance Ltd. v Director, Department of Supervision of . 81
Non-Bank Financial Institutions and others
(Marsoof, J.P/CA)•
for such an investigation after submission of the report to the 2ndrespondent. Thus detailed information regarding the number ofdepositors, their identities, the quantum of their deposits, themanner in which the funds so received have been invested orutillised etc. must be set out in the report to the 2nd respondent.Otherwise, the 2nd respondent would not be in a position to makean informed determination in terms of sectionll (2) of the Act with aview of safeguarding the interests of the public who may havedeposited money with the Okanda Finance. If the report merely 670.stated that the Okanda Finance accepted deposits and investedthose deposits without making reference to the details of suchdeposits and investments, then, the 2nd respondent would beunable to make informed decisions to safeguard the depositorsbased on these bare statements alone. The necessity to requestfor detailed information is also evident from the fact that section 43'of the Finance Companies Act permits judicial review of anydetermination that may be made by the 2nd respondent MonetaryBoard in terms of section 11(2) of the Act.
It was also submitted on behalf of Okanda Finance that the 680'information requested included confidential information that couldprejudice the said company if they were made available to itscompetitors. In this regard it is noted that section 45(1) of theMonetary Law Act, No 58 of 1949, as subsequently amendedconfers secrecy on any information that may be furnished to the 1 strespondent. By the same provision the guarantee of secrecy hasbeen extended to several other institutions, including bankinginstitutions, which submit information to the various Departments ofthe Central Bank that are perhaps relatively more confidential thanthe information requested from Okanda Finance. If the information 690requested was vitally confidential as Okanda Finance nowcontends, it is surprising that it had omitted to state so in theseveral letters written by it to the 1st respondent marked P5, P8and P13. This omission to make reference to the confidentiality ofthe information in the letters written by Okanda Finance suggeststhat confidentiality was not a concern that it entertained when itavoided furnishing the information and documents called for by P6.
The fact that the issue of confidentiality has been raised belatedlyfor the first time in this application casts doubts about the bona
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tides of Okanda Finance. In any event, the law does not sanctionthe withholding of information on the basis of confidentiality alone,except in the very limited circumstances expressly provided for inthe Evidence Ordinance.
The third ammunition in the three pronged attack on the vires ofthe 1st respondent launched by learned President’s Counsel forOkanda Finance was the submission that the respondents weremotivated by malice against the petitioners. It was submitted by theAdditional Solicitor General appearing for the respondents that thefollowing matters vitiate any inference of malice alleged by OkandaFinance against the respondents:
Public interest requires that institutions that acceptdeposits from the general public are investigated andregulated. Consequently it is in the public interest thatinstitutions that are suspected of accepting deposits fromthe public, such as Okanda Finance, are investigated.
There are several other institutions, apart from OkandaInvestments and Okanda Finance, that are underinvestigation by the 1 st and 2nd respondents for allegedlyaccepting deposits from the general public. ConsequentlyOkanda Finance has not been singled out for the purposeof investigation in this connection.
The evidence that has been collated up to the presentstage of investigation suggests that Okanda Finance maybe engaged in finance business. Therefore there isadequate justification for investigating Okanda "Financefor allegedly accepting deposits from the general public.
The allegation of mala tides made by Okanda Finance is
belated and it has been advanced in this application forthe first time despite several prior correspondence withthe 1st and 2nd respondents.'.
There is no doubt that the public interest requires institutionsthat accept deposits from the general public are investigated,regulated and supervised effectively to avoid financial loss andother dire consequences that may occur as highlighted in the
recent decision of this court in Benedict and Others v Monetary
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730
GA Okanda Finance Ltd. v Director, Department of Supervision of 83
Non-Bank Financial Institutions and others
(Marsoof, J.P/CA)
Board of the Central Bank of Sri Lanka and Others (Pramuka Bankcase). (®) In this regard as averred in paragraph 15 of the affidavitof the 1st respondent, some of the institutions that have invited thegeneral public to deposit their funds with them promising to payhigh interest rates are not registered and regulated either in terms 740of the Finance Companies Act or other regulatory legislation suchas the Banking Act, No. 30 of 1988 dr the Monetary Law Act, No.
58 of 1949, as subsequently amended. Consequently thesecompanies are not required to comply with norms such as capitaladequacy ratios, maintenance of liquid assets, restrictions onlending to directors / relatives / related companies and otherprudential norms imposed on institutions registered under theaforesaid regulatory legislation. The general public might invest inthese companies simply attracted by the high interest rates, andget in to serious Pramuka type difficulties. It was suggested by the 750learned Additional Solicitor General that the general public mighteven mistake Okanda Finance as a company that is in factregistered in terms of the Finance Companies Act since it uses theword “Finance” as a part of its company name. Such members ofthe general public who deposit money run a serious risk of loosingtheir deposits since the above safeguards applicable to institutionsregistered under the Banking Act and Finance Companies Act arenot applicable to these companies that are not so registered.
It was also stressed by the Additional Solicitor General thatOkanda Investments and Okanda Finance were not being singled 760out, and there are more than 20 other institutions that are underinvestigation by the 1st and 2nd respondents for allegedlyaccepting deposits from the general public and enagaging infinance business. This is confirmed by the newspaperadvertisement marked P16 filed along with the counter affidavit ofOkanda Finance which lists the names of several companies/institutions as being under investigation for allegedly acceptingdeposits from the public and engaging in finance business withoutproper registration under any of the aforesaid regulatory legislation.
The learned Additional Solicitor General has also emphasized 770that the allegation of mala tides has been belatedly raised byOkanda Finance. In the letters of Okanda Finance marked P5, P8
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and P13 there is absolutely no suggestion that the respondentshave been actuated by malice, and the allegation of mala fides hasbeen made for the first time in the application filed in this court. Thesaid allegation has been made on grounds, which if true, wouldhave existed prior to the dates of the aforesaid correspondence.
The main ground on which this allegation of mala fides has beenmade by Okanda Finance is that the 1 st and 2nd respondent bearmalice towards its official M.B. de Silva who was previously 780employed with the 2nd respondent and that officers who werejunior to the said M.B. de Silva were engaged in the investigationagainst Okanda Finance. If Okanda Finance felt that some of theofficers investigating its affairs were for whatever reason biasedagainst it, it should have named these officers and objected to theinvestigation being conducted by them, but Okanda Finance neveravailed of the many opportunities it had to do so. In any event, the1st respondent has stated at paragraph 14 of her affidavit that shehas never functioned as junior to the said M.B.E. Silva.Furthermore, the request for information made by the 1st 790respondent in P4 has been partly complied with by OkandaFinance through P5. If Finance genuinely felt that the 1st and 2ndrespondents were acting maliciously, it is unlikely that it would havewritten P5 and sent its representatives for the discussion that tookplace with the ,1st and 2nd respondents on 26th August 2002. Theallegation of malice surfaced only after additional particulars anddocuments were called for by P6. In this regard it is necessary torefer to the observations of J.A.N. de Silva J. in Seneviratne andOthers v. Urban Council Kegalle, and Others (®) at 111-112
“The petitioners have also submitted that there is malice in soorespect of this acquisition. It is to be noted that question ofmalice and the absence of a public purpose are linked. In theinstant case the presence of a public purpose negatives theallegations of malice. It is also significant to note that the
allegation of malice was raised in the counter affidavit
There must be specific evidence to establish and sustain theallegation of mala fides.”
On the question of “malice” it would be relevant to refer to thefollowing observations with regard to standard of proofrequired for the allegation of mala fides to succeed.810
QA Okanda Finance Ltd. v Director, Department of Supervision of 85
Non-Bank Financial Institutions and others
(Marsoof, J.P/CA)
‘The plea of mala tides is raised often but it is only rarelyit can be substantiated to the satisfaction of court. Merelyraising a doubt is not enough. There should be something,specific, direct and precise to sustain the plea of malatides. The burden of proving mala tides is on the individualmaking the allegation as the order is regular on its faceand there is a presumption in favour of the administrationthat it exercises its power in good faith and for the publicbenefit.” Principles of Administrative Law (Jain & Jain, 4th 820editionl 988 page 564”.
I am of the opinion that the evidence placed by Okanda Financeon the question of mala tides does not satisfy the aforesaidstandard of proof. Indeed, I am also of the view that the allegationof malice had been made belatedly and on frivolous grounds byOkanda Finance merely to avoid compliance with the law. In thecircumstances, the three pronged attack launched by the learnedPresident’s Counsel for Okanda Finance, on the vires of the lstand 2nd respondents has to fail.
As noted at the outset, for the disposal of this application it is notnecessary for this court to decide or express any opinion as to 830whether Okanda Finance was or is in fact engaged in financebusiness. The only issue for this court is whether the notices dated25th September 2002 (P14) and 27th September 2002 (P15)issued by the 1st respondent ought to be quashed on the basis thatfor the reasons urged by Okanda Finance the 1st respondent wasnot entitled to call for the information and documents set out in thethird paragraph of the letter dated 12th September 2002 (P6) sentby the 1st respondent calling for certain documents andinformation. However, this would appear to be an exercise in futilityas Okanda Finance cannot impugn P6 without a prayer for the 840quashing of the order contained in the letter marked P6. As pointedout by this court in Culasubadhra v.The University of Colombo(1°)in writ applications such as this, a ground not pleaded cannot beset up in the course of the hearing. In J.B. Textile Industries vMinister of Finance (11) 286 Parinda Ranasinghe, J. has observed-
‘The petitioners’ claim has not been presented in their
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petitions* as in the Padfield case (supra), in the alternative- that, if the Minister is held not to be under a duty but tobe vested with a discretion, then such discretion has notbeen exercised according to law. That being so, I do not 850think this court should consider the grant of relief upon abasis not expressly set out in the petitions and in respectof which the respondent was not called upon to meet in hisstatement of objections.”
For the above mentioned reasons I refuse this application anddismiss the same with costs fixed at Rs. 15,000 payable by OkandaFinance.
SRIPAVAN, J. -1 agree.
Application dismissed.