Disturbing tendency in recent times for the government to impose taxation.


There has been a disturbing tendency in recent times for the government to impose taxation by newspaper advertisements, pending the enactment of relevant empowering legislation, and subsequently to confer retroactive validity upon such obviously illegal activity. This is a most unsatisfactory method of imposing taxes and such a practice is not only arbitrary and illegal but is contrary to the rule of law and principles of good administration. Long years ago James Otis (1725-83) expressed the view that taxation without representation was tyranny. This principle has now received constitutional status in Sri Lanka.

This article examines some instances where legislation has been introduced to retroactively validate an unlawful levy of tax and evaluates the implications of such legislation for taxpayers.

Constitutional Principles.

Article 148 of the Constitution explicitly lays down that Parliament shall have full control over public finance. The relevant constitutional postulate is as follows:

148. Parliament shall have full control over public finance. No tax, rate or any other levy shall be imposed by any local authority or any other public authority, except by or under the authority of a law passed by Parliament or of any existing law.

Cooray,1 analysing the constitutional principles involved, makes the following observation:

The two main constitutional principles relating to public finance are: (1) The raising or spending of public money requires the authority of Parliament

According to Zafrullah,2 article 148 of the Constitution “embodies the fundamental principle of British constitutional law that a subject cannot be taxed except directly by statute enacted by Parliament or alternatively by resolution of the House of Commons passed by virtue of an enabling power in a statute.”

The exclusive power possessed by the British Parliament to levy taxes is widely recognised as a manifestation of the sovereignty of Parliament. The principle owes its origin to the Bill of Rights which provides that “no charge shall be levied by pretence of prerogative without the consent of Parliament. More recently, Lord Goff, delivering his opinion in the House of Lords in Woolwich 4 had occasion to allude to Parliament’s monopoly in respect of the power to impose taxes. His Lordship made the following observation:


LL B. (Hons.) (London)

[The retention by the State of taxes unlawfully exacted is particularly obnoxious, because it is one of the most fundamental principles of our law – enshrined in a famous constitutional document, the Bill of Rights (1688) – that taxes should not be levied without the authority of Parliament

It is, therefore, a trite constitutional principle in the United Kingdom, despite the absence of a written constitution in that country, that Parliament possesses a monopoly in respect of the power to levy tax and such a power can only be delegated to another subordinate body under the authority of Parliament.

In Sri Lanka, however, the constitutional principle is explicit and leaves no room for any doubt regarding the matter. However, the principle that Parliament has an exclusive monopoly in respect of the power to levy taxes predates our current constitution. The principle had received judicial recognition, by adoption of the British principle, prior to it receiving constitutional status in Sri Lanka.5

Imposition of Taxes by Newspaper Advertisements.

The Budget 2002 was approved by Parliament on 11 April 2002 and the revenue proposals contained in the said budget were implemented by a newspaper advertisement under the hand of the Secretary to the Treasury pending the enactment of relevant legislation. For instance, in terms of this advertisement, amendments to the Betting and Gaming Levy Act were to be effective from 1 April 2002 (which was even prior to the Budget) whilst withholding tax on interest, rent, lease rent or other payments was deductible with effect from the same date. The Port and Airport Development Levy was to be imposed with effect from 1 May 2002. However, the Finance Act, No 11 of 2002, was certified as law only on 8 July 2002. This Act, inter alia, gave statutory effect to the Budget proposals to impose a Port and Airport Development Levy and effect amendments to the Betting and Gaming Levy Act, No 40 of 1988.

The Budget proposals relating to withholding taxes were given statutory effect by the Inland Revenue (Amendment) Act, No 10 of 2002. This Act was certified as law on 21 June 2002. Section 37 (1) of the Inland Revenue (Amendment) Act, No 10 of 2002,

provided an indemnity to any person who had withheld any payment in respect of taxes, so as to give effect to the Budget proposal, prior to the enactment of the relevant law.

Section 9 of the Finance Act, No 11 of 2002, gave retrospective effect to the Budget proposal to impose the Ports and Airport Development Levy whilst section 10 of the same Act indemnified and validated the actions of the Director General of Customs in collecting the levy in the period prior to the law being given legal effect. Section 16 of the Finance Act, No 11 of 2002, gave retrospective effect to the Budget proposal to amend the Betting and Gaming Levy Act, No 40 of 1988.

This trend of effecting statutory amendments by newspaper advertisements, prior to the enactment of empowering legislation, has continued unabated to the present day.6 The technique adopted by the government has been to confer retroactive validity to an activity (that is the levy of a tax without legal authority), which is essentially unlawful, and to subsequently indemnify delinquent officials from incurring any civil of criminal liabilities for being party to such unlawful activity.

Additionally, section 75 A of the Value Added Tax Act, No 14 of 2002 (as amended by Act, No 7 of 2003), provides as follows:

754. The Secretary to the Ministry of the Minister may, from time to time, issue guidelines in respect of any matter, he considers appropriate for the proper implementation of the provisions of this Act.

It is important to note that the power conferred by section 75A does not permit the Secretary to the Ministry of Finance to effect statutory changes. The statutory remit is only in respect of implementing the provisions of the Value Added Tax Act. It does not relate to determining the quantum of tax to be imposed or to the class of persons who are subject to such a tax. These are matters for Parliament alone to determine.

Parliament can, however, delegate to a minister the power to determine the rate of tax or items or persons who will be subject to a tax. However, such a power can only be exercised if Parliament has specifically delegated such a power. A delegated power has to be exercised within the confines of the empowering statute. It cannot be exercised ultra vires the empowering statute. In any event a delegated power cannot be used for the purpose of imposing a wholly new class of tax or implementing fundamental changes in the tax system since such a course of conduct would clearly be unlawful.

Retroactive Validation and the Rule of Law.

It is a well established principle that retroactive legislation, unless for the purpose of conferring a benefit upon the subject or for the purpose of effecting procedural changes, is contrary to the rule of law and principles of good administration. Additionally such legislation violates the constitutional postulate against retroactive penal legislation7 (it is relevant to note that non-compliance with tax legislation could entail penal consequences).

Bennion 8 is of the view that law should not operate retrospectively. He makes the following comment in respect of this matter

A person cannot rely on ignorance of the law and is required to obey the law. It follows that he or she should be able to trust the law and it should be predictable. A law that is altered retrospectively cannot be predicted. If the alteration is substantive it is therefore likely to be unjust. It is presumed that Parliament does not intend to act unjustly. From the general principle governing retrospectively it follows that the penalties imposed for any transgression of the law should not be altered to the detriment of the transgressor after he or she has transgressed. Any such alteration amounts to switching the rules while the event is still in progress, and is obviously unfair.9

Bennion’s reasoning is in line with that adopted by Fuller10 who points out that “a retroactive law is truly a monstrosity.” Fuller makes the following further observation in respect of retroactive laws:

Law has to do with the governance of human conduct by rules. To speak of governing or directing conduct today by rules which will he enacted tomorrow is to talk in blank prose.11

Thus, the principle is clear that retroactive tax legislation has not place in a country which claims to be a democracy and is committed to the rule of law.


It is submitted that the current practice adopted by the government to levy taxes via newspaper advertisements pending the enactment of relevant legislation is not only illegal, inasmuch as it violates the constitution, but it is also a very unsatisfactory practice which is contrary to the rule of law. The practice also results in putting public officers into difficulty since they are compelled to illegally extract a tax in the absence of empowering legislation.

Whilst it is true that the government has subsequently enacted legislation, retroactively validating such unlawful activity and/ or conferring an indemnity/ immunity on delinquent officials, this is a totally unacceptable and unethical practice if it is to be adopted as the general norm. The difficulties caused would be further aggravated if Parliament is dissolved prior to empowering legislation being enacted and delinquent officials will not be clothed with any immunity/ indemnity in order to validate their unlawful activities thereby leaving them exposed to a possible legal challenge.

A practical manifestation of this situation was observed when Parliament was dissolved in 2004 prior to certain fiscal statutes being certified by the Honourable Speaker of Parliament in the manner prescribed by Article 79 of the Constitution read with Standing Order 69 of the Standing Orders of Parliament. The resulting position was that Value Added Taxes continued to be levied at the rate of 15% and goods and services that were previously not taxed were subject to Value Added Tax without empowering legislation from January until November 2004. This change in the tax regime had been in operation for a period of almost eleven months without legislative sanction.

In the circumstances, it is a matter for grave concern that the government has persisted with the practice of imposing taxes by newspaper advertisements prior to the enactment of empowering legislation. One could understand and perhaps justify such a course of conduct in exceptional circumstances where the country is facing an emergency situation. However, the circumstances under which such advertisements have been inserted in the past have not satisfied the threshold criteria to be regarded as emergency measures. The upshot of this is that such advertisements are wholly bad, unlawful and contrary to the rule of law.


1 Cooray, Joseph A. L., Constitutional and Administrative Law of Sri Lanka [Colombo: Sumathi Publishers, 2nd edn., 1995], at p. 260.

2 Zafrullah, H. M., Sri Lanka’s Hybrid Presidential and Parliamentary System & The Separation of Powers Doctrine [Kuala Lumpur: University of Malaya Press, 1981], at p. 50.

3 Tiley, John,RevenueLaw [Oxford: Hart Publishing, 4th edn., 2000], at p. 27.

4 Woolwich Equitable Building Society v. Inland Revenue Commissioners, [1992] STC 657, at pp. 677 – 678.

5 See, e.g.,Illeperuma Sons Ltd. v. Government Agent, Galle, (1968) 70 NLR 549,per H N G Fernando, C. J., at p. 551.

6 See, e.g., the government notice published in the Daily News, 30 December 2002, regarding proposed changes in tax legislation consequent to the Budget proposals of 2003

7 See, e.g., article 13 (6) of the Constitution,

8 Bennion, Francis, Statutory Interpretation [London: Butterworths, 3rd edn., 1997], at p. 623.

9 ibid.

10 Fuller, Lon L., The Morality of Law [New Heaven: Yale University Press, revised edn., 1964], at p. 53.

11 ibid.

“Law is the true embodiment of everything that’s excellent’ William S. Gilbert

“Law is the backbone which keeps men erect” S. C. Yuter

“The Law is reason free from passion” Aristotle

protecting jftlinoritp

Mnber W$z Companp

By DR. HARSHA CABRAL – PhD in Corporate Law (University of Canberra) Australia.-Attomey-At-Law (Sri Lanka). – Lecturer, Law College, Sri Lanka. – Former Lecturer, Institute of Chartered Accountants, Sri Lanka. – Member, Advisory Commission on Company Law, Sri Lanka.-Member, National Science Foundation, Sri Lanka (Patent Committee).- Senior Associate, K.Kanag-i$varan, PC, Law Chambers, Sri Lanka. – Senior Partner, Law Office of Dr. Marsha Cabral, Sri Lanka. – Legal Consultant (Company Law, Intellectual Property Law & Commercial Arbitration).


The Corporations Law or better known as Company Law in Sri Lanka has been under the influence of English Law principles since the British took over control in this island. Pursuant, to her independence in 1948 too Sri Lanka has had a few enactments dealing with Company Law, namely the amendments to the Companies Ordinance of 1938 and the Companies Act of 1982 (the present Act) which again are structured on the English models. Shareholder remedies too are no exception in the said statutes as the English Law remedies are followed to the letter and spirit without exception.(1)

Therefore, it is no exaggeration to say that Sri Lanka’s corporate law is predominantly structured on the English model. Having been subject to the British administration from 1796 to 1948 at which point she gained independence, Ceylon as she was then called, embraced the English Company legislation blindly. The Companies Ordinance No 51 of 1938 with amendments up to 1965 and the Companies Act No 17 of 1982 the present Act in operation are wholly followers of the Companies legislation of England. However, since other jurisdictions have developed their corporate laws and have made innovative steps in the correct direction moving forward in their respective economies, Sri Lanka too has initiated moves in the nineties to amend and modify its Corporate Laws to keep in line with developed jurisdictions. With the initiation of the Advisory Commission on Company Law in Sri Lanka, the Law Commission of Sri Lanka and with assistance of international donor agencies, the Company Law has taken a new turn with regard to law reform. The Committee appointed by the Government of Sri Lanka for Law reform in Company Law, having made their

observations to the public, obtaining views from the corporate community and pursuant to conducting several seminars on the matter presented a consultation draft in September 1995 for further discussion. Mr. David Goddard, a senior practitioner and scholar in New Zealand who assisted the process of reform, was responsible in introducing the New Zealand flavour to many provisions of the Company Law as New Zealand had introduced a new Companies Act in the nineties. However, the reforms in the form of a new Act are still in the pipeline.(2)

COMPANIES ACT NO. 17 OF 1982. (3)

The Company Law in Sri Lanka at present is governed by the Companies Act No. 17 of 1982, which has been in operation for the last 22 years. This Act consists of 17 Parts and 453 sections.

Part V of the Companies Act dealing with ‘Insider Dealings’ was not brought into operation. The other sections of the Companies Act were brought into operation on 2nd July 1982 by Gazette No. 199/14 of 2nd July 1982. Part V was omitted as similar provisions were introduced later in the Securities Council Act No. 36 of 1987 which was certified on 27* August 1987. The Securities & Exchange Commission of Sri Lanka and the Colombo Stock Exchange come under the said regime.(4)


It is important to mention what a Public Quoted Company is, in the Sri Lankan context. A Public Quoted Company is a limited liability Company whose shares are quoted for purchase and sale in the Colombo Stock Exchange.(5) The Colombo Stock Exchange (‘CSE’) is the market place for trading in the securities of quoted companies. These Companies

are bound by the Colombo Stock Exchange Listing Rules. In addition however, the Securities & Exchange Commission Act, (‘SEC*) the Regulations framed under the SEC Act, the Sri Lanka Accounting & Auditing Standards, The Institute of Chartered Accountants of Sri Lanka Act, the Companies Act and several other connected statutes regulate the functions of the different companies and persons involved in thereto.


In addition to the Companies Act of Sri Lanka, it is pertinent to note the Securities Regime of Sri Lanka, which controls the listed companies and ancillary matters thereto. The following rules and regulations under the Securities & Exchange Commission of Sri Lanka Act No. 36 of 1987 as amended by Act No. 26 of 1991 govern that area of the Corporate arena:-

SEC Rules

-Gazette No. 625/3 of August 27,1990.

-Amended by Gazette No. 709 of April 3, 1992 and

-Gazette No. 873 of May 26, 1995.

Take-Overs & Mergers Code.

-Gazette No. 875/9 of June 16, 1995.

Unit Trust Code

•Gazette No. 884/13 of August 18, 1995.

SEC Regulations

-Gazette No. 612/8 of May 29, 1990.

Unit Trusts Regulations

-Gazette No. 681/2 of September 24, 1991.

-Amended by Gazette No. 755/1 of February 22,1993.


As the protection of shareholders is an important phenomenon in Corporate Law in any jurisdiction, emphasis must be given to this feature under the Corporate Laws of Sri Lanka. Some of the important provisions contained in the Act are as follows:

Under Section 113, where the name of any person is, without sufficient cause entered in or omitted from the register of members of a company or, default is

made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, it provides for any member of the Company to make an application to court for rectification of the register.

Section 127 of the Act provides for a Company to hold a general meeting called its annual general meeting for a particular year as referred to above. Section 127(2) provides for an application to be made by a shareholder to the Registrar of Companies complaining any default and the Registrar may then call or direct the calling of a general meeting.

Section 128 of the Act, states that the directors of a Company shall on requisition of members of the Company holding at the date of such requisition, not less than one-tenth of such of the paid up capital of the Company as at such date carries the right of voting at general meetings of the Company, or in the case of a Company not having a share capital, members of the Company representing not less than one-tenth of the total voting rights of all the members having at such date a right to vote at general meetings of the Company, forthwith proceed duly to convene an extraordinary general meeting of the Company.

Section 129 of the Act provides for a statutory minimum period of notice to be given to the shareholders of meetings of the Company.

Section 130 of the Act sets out provisions concerning shareholders voting rights and rights at meetings.

Section 131 of the Act sets out when Court can order a meeting to be called.

Section 133 of the Act permits a member of a Company entitled to attend and vote at a meeting of the Company, subject to certain restrictions, to appoint another person to attend and vote instead of him.

Section 134 of the Act gives the right of shareholders to demand a poll.

Section 142 of the Act provides for any member to inspect the books containing the minutes of proceedings of any general meeting and also to obtain a copy.

Section 154 of the Act, permits the shareholders to receive a copy of every balance sheet, including every document required by any written law to be annexed thereto, which is to be laid before a Company at a general meeting together with a copy of the auditors report in advance of such meeting.

Section 156 of the Act provides for the shareholders of the Company at each annual general meeting, to appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meting.

Section 161 of the Act provides that in case of an application made either of not less than fifty members holding not less than one-fifth of the shares issued, in the case of a company having a share capital, and, in the case of a Company not having a share capital, on the application of not less than one fifth in numbers of the persons on the Company’s register of members, the Registrar may appoint one or more competent inspectors to investigate the affairs of a Company and to report thereon on such manner as the Registrar may direct.

Section 162 of the Act provides further, for the Registrar to conduct a similar investigation (as in 161) where the Company by special resolution or the Court by order, direct the affairs of the Company ought to be investigated, or to direct an investigation on circumstances listed therein.

Section 169 of the Act provides the Registrar to appoint one or more inspectors to investigate the ownership of the Company if necessary.

Section 170 of the Act provides for the investigation of ownership of any shares/debentures of the Company.

Under Section 143 the books of accounts must be open to inspection by the Registrar at all times.

Under Section 173 the Registrar has the power to verify the assets and liabilities of the Company.

Under Section 431 the Registrar may, by written notice direct the Company to furnish before a specified date any form of information, explanation, declaration, return, document, book or register regarding any matter concerning the Company, as he may require for any purpose.

Section 185 of the Act provides for the shareholders of a Company to remove a Director before the expiration of his period of office notwithstanding anything in the company’s articles or any agreement between the Company and the director.

Section 206 permits the shareholders to make an application to court in the instance of a proposed compromise or arrangement between the Company

and its members to order a meeting of the creditors or class of creditors or of the members of the Company or class of members to be summoned in such manner as the court directs for the purpose of sanctioning such compromise or arrangement.

In addition however the winding up remedy too is available in Sri Lanka as referred to above.

Section 255 states that a company may be wound up by the court, if, inter alia,

(a) the company has by special resolution resolved that the company be wound up by the court

(b) the court is of opinion that it is just and equitable that the company should be wound up.

Section 258(2) states that where a winding-up petition is presented by members of the company (as contributories) on the ground that it is just and equitable that the company should be wound up, the court shall where it is of opinion that –

(a) the petitioners are entitled to relief either by winding up the company or by some other means

(b) in the absence of any other remedy it would be just and equitable that the company should be wound up, make a winding-up order, unless it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

Similarly, Section 308(1) provides for a company to be wound up voluntarily, inter alia, when the company resolves by special resolution that the company be wound up voluntarily.

These sections provide for shareholders to wind up the affairs of the company.


Sections 210 and 211 provide redress to shareholders in a situation where there is oppression of a minority of shareholders or mismanagement of the affairs of the company, and the court may on an application made by certain members, provide for the control or regulation of the company’s affairs or of any matter connected with the company for which the court thinks it is just and equitable that provision should be made.

This is one of the common statutory remedies used by the minority shareholders against companies.

The court may, upon such application being made by, in the case of a company having a share capital not less than five per centum of the total number of its members or the holders of not less than the aggregate of five per centum in the nominal value of the company’s issued capital or in the case of a company not having a share capital, a number of members less than twenty per centum of the company’s members make any order as it thinks fit, if under Section 210, the affairs of the company are being conducted in a manner oppressive to any member or members and to wind up the company would unfairly prejudice such member or members

or, under Section 211,

(a) the affairs of the company are being conducted in a manner prejudicial to the interests of the company

(b) a material change has occurred in the management or control that would result in the affairs of the company being conducted in a manner prejudicial to the interests of the company.

Sections 210 and 211 gives the court general powers and without prejudice to such powers, Section 216 provides for the court to make orders in –

(a) the regulation of the conduct of the company’s affairs in the future

(b) the purchase of the shares or interests of any members of the company by other members thereof or by the company

(c) in the case of purchase of shares by the company as aforesaid, the consequent reduction of its share capital

(d) the termination, setting aside or modification of any agreement, however arrived at between the company on the one hand, and any of the following persons on the other, namely –

(0 the managing director

(ii) any other director

(iii) the board of directors

(iv) the agent or secretary, or

(v) the manager,

upon such terms and conditions as may, in the opinion of the court, be just and equitable in all the circumstances of the case

(e) the termination, setting aside or modification of any agreement between the company and any person not referred to in paragraph (d) upon such terms and conditions as may, in the opinion of the court, be just and equitable in all the circumstances of the case but always so that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and his being heard,

(f) the setting aside of any transfer, delivery of goods payment, execution or other act relating to property made or done by or against the company within the three months immediately prior to the date of the application or the commencement of winding up proceedings, as the case may be, which would if made or done by or against an individual, be deemed in a case of his insolvency to be fraudulent preference, and

(g) any other matter for which in the opinion of the court it is just and equitable that provision should be made.

Section 215 states that reliefs under Section 210 and Section 211 may be granted by court even during winding-up proceedings.

Section 213 states that an interim order regulating the company’s affairs, may be made by court, on the application of any party to the proceedings, pending the making of a final order under Section 210 or Section 211.

In addition to the statutory remedies available as discussed above, a common law remedy of a Derivative Action is also available to the minority shareholder. Though the English common law remedy of derivative action was not used in Sri Lanka until the nineties, the case of Ameresekere Vs. Mitsui & Co. & others.(7) paved way to this type of actions, where the Supreme Court of Sri Lanka accepted the position that the derivative action is available under the law of Sri Lanka. A Derivative Action is an action by a member of a company where the cause of action is vested in the company and relief is sought on its behalf, though the application is made to Court by a member under a right derived from the company in the name of the company. In the new Companies Act

which is being drafted the proposed Section 238 provides for Derivative Actions in a statutory form. A shareholder or a director of a company may apply for leave of Court to commence the proceedings. However, it is provided for persons on whom shares have devolved through a shareholder, the executor or administrator of a deceased shareholder and a person who was a shareholder six months prior to the making of an application. The terms director and shareholder are defined in detail for the purpose. These proceedings are to be brought in the name and on behalf of the company or any subsidiary of that company. The proposed Sections 237 & 526 provide for restraining orders and interim relief the Court can grant.

Another protection available to shareholders is to be seen in the provisions relating to insider trading now enacted as Sections 32 to 34 in the Securities and Exchange Commission of Sri Lanka Act,(8) as amended.


Sri Lanka an Asian country which has followed the English Company Law in the past to a great extent is not unwilling to make changes to suit the Asian environment on development and follow the success stories of victors. Sri Lanka has initiated moves to rectify the system of corporate governance in its jurisdiction. In 1997 The Institute of Chartered Accountants of Sri Lanka prepared a ‘Exposure Draft of the Code of Best Practice’ with contributions made by the corporate community of the country. In the preface to the exposure draft, the Chairman, Committee to make recommendations on matters relating to financial aspects of Corporate Governance inter-alia states

. . . Corporate Governance which is popularly understood to be the system by which companies are directed and controlled, has been an issue which has resulted in a great deal of comment and debate over the past few years all over the world. In Sri Lanka, the impact of the Cadbury Committee’s report in UK has been felt, and several companies which are listed in the Colombo Stock Exchange already follow some of the recommendations contained therein as well as some subsequent reports on Corporate Governance prepared in the UK and some other countries.

At a time when Sri Lanka’s own Stock Exchange is showing greater maturity and growth, it seems timely that Sri Lanka too should critically examine the issues

relating to Corporate Governance and develop suitable responses. …(9)

This alone speaks for itself the approach taken by Sri Lanka on this important issue.


Therefore, the Corporations Law and minority shareholder remedies in Sri Lanka as referred to above is compiled of the Companies Act No. 17 of 1982, the SEC Act, and monitored by the Registrar of Companies, SEC, CSC, the Accounting Standards, the Auditing Standards and by the judiciary. It is relevant to note that English authority, case law and otherwise is cited in abundance in Company Law matters including minority shareholder remedies in Sri Lankan Courts. (10)

The State owned organizations and bodies incorporated by statute are not covered in this paper as they are governed separately by the individual statutes, which controls them. Eg. Mineral Sands Corporation of Sri Lanka.

“… From a practical viewpoint, a consideration of the rights and remedies of a member of an Australian company must be preceded by a consideration of the degree to which a member may control the operation of the company. Further, a consideration of a member’s rights and remedies is, implicitly, a consideration of the duties and obligations owed to that member by the company and its other members. … “

1. Shareholder remedies referred to later.

2. It is now to be finalised by the Company Law Advisory Commission.

3. The present Company Law statute in operation.

4. SEC & CSE referred to later.

5. The office of the Colombo Stock Exchange is situated in the Fort, Colombo. The Trading Floor too is in the same office.

6. The SEC Office too is situated in Colombo.

7. (1993) 1 SLR 22

8. No. 36 of 1987.

9. Exposure Draft of the Code of Best Practice, (August 1997) Published by the Institute of Chartered Accountants of Sri Lanka-Pgs.4,5.

10. In the original Courts and in the appellate Courts.

grievance ^an&ltns – dlriebante

By V, VIMALARAJAH-Attorney at Law, Retired President Labour Tribunal

The International Labour Organization has defined a “grievance” as -“any complaint or dissatisfaction on the part of a worker or group of workers relating to his or their employment in the undertaking with the exception of general claims which normally fall within the scope of collective bargaining on conditions of employment”.

It is human to have a grievance. There cannot be anyone without a grievance. It is the basic right of a worker to submit his grievance to the employer, have it examined by the employer with a view to granting relief or redress. For the maintenance and promotion of sound and harmonious employer -employee relationship it is a must that there must be a fair, balanced and effective grievance procedure. The closer tie-up of employer and employee with good understanding of each other is the surest way to success in creating a situation of industrial harmony. Pope Leo XIII has said as follows:

“Each needs the other -Capital cannot do without Labour or Labour without Capital”.

In simple language there should be absolute oneness between employer and employee like the husband and wife in a happy family.

Ingredients of an effective grievance procedure

In grievance procedure “top priority” ranks No. (1) and it must be as expeditious as possible. There must be an express service round the clock to handle the grievance by an effective procedure. This is the quickest easiest and surest way to win the confidence of the worker. If justice is done to the worker concerned by way of an Express service, he becomes a contented workman. In case, grievances are allowed to accumulate for a long period they grow into an “inflammable stockpile which could generate an explosive situation. Strict deadlines or Time limits should be set for settlement of grievances. If this is done the worker will not only get encouraged but Motivated to pull his weight and do his best to the organization he is working. The resulting position of

such a course of expeditious redress of grievances would be creation of a sense of belongingness of the worker to the employer – organization.

There are two types of grievance procedure. The first one is the informal open door policy for handling grievances of employees. Open door policy permits the employees to go to the Management freely. There is no formalized procedure and it is unwritten. The open door policy would tend to generate imaginary grievances.

The other type of grievance procedure is the step-ladder procedure for the purpose of processing grievances expeditiously. In this step-ladder procedure the aggrieved workman will have to go step by step -First to the Supervisor -if not satisfied he goes to the Head of the Division and there after to Works Manager. If grievances remain unsettled, they are referred to the Chief Executive. It is important to state that the Personnel Manager does not fall into any step but he offers advice and assistance at every level or step in the process of handling grievances.

For a grievance procedure to be successful, it is important that –

i. the Management should give its full support

ii. the procedure should have the consent and concurrence of the Trade Union and employees’ representative.

iii. the procedure should be quite simple and easily workable.

iv. Personnel Division should act in an advisory capacity.

v. there should be respect for decisions taken at each level

vi. Wide publicity should be given to the procedure and achievements of the company

vii. the procedure should be reviewed periodically and changes be introduced in keeping with the changes of the changing time.

Domestic Inquiry

Domestic inquiry is an important integral part of grievance procedure. Domestic inquiry is, in simple language, an internal inquiry conducted by an employer when an employee commits an act of misconduct. The term “misconduct” has a wide meaning. It has been defined as follows –

“An act should be regarded as an act of misconduct if it is inconsistent with the fulfillment of express or implied conditions of service or if it has a material bearing on the smooth and efficient working of the concern”.

Alfred Avins in his book “Employees’ Misconduct” deals comprehensively with all types of misconduct. He has said in Chapter I titled “Absence without leave” as follows :

“Absence without leave is one of the most common types of misconduct an employee can commit”.

When an employee commits an act of misconduct, disciplinary action is taken. The type of disciplinary action to be taken is not specified anywhere. The Industrial Dispute Act does not specify anything in relation to disciplinary action. There is no law governing disciplinary action or domestic inquiry unlike in India where domestic inquiry is a requirement under the law.

The behaviour pattern in relation to disciplinary action is given below :

When an employee commits an act of misconduct, the first step the employer should take is to conduct a preliminary investigation, which can be as follows :

i. Obtain the statement of the accused employee in his own handwriting

ii. Obtain the statements of eye witness to the incident in their own handwriting.

iii. An officer in the work place can record the statements but it is wise and desirable, if statements are given by them in their own handwriting.

iv. If as a result of preliminary investigation a prima facie case is established, a show cause letter may be issued to the accused.

v. The employee may be suspended from employment with or without pay if it is felt that his continuance in employment will be an impediment to the smooth conduct of investigations or inquiry. The purpose of the preliminary investigation is to find out 05 Ws and IH – Who, What, When, Where, Why and how it happened.

Show Cause Letter

The show cause letter will have to be aptly worded. The charges should be specific and not hypothetical. For example if the charge relates to an incident of abusing in filth, it should specify the date, time, place etc., of the act of abuse, in whose presence it was done and also the words used by the accused employee.

The show cause letter, if it relates to several charges each charge should be set out in specific and clear terms. The show cause letter should state –

i. The deadline date for the furnishing of the explanation in writing. In case of a company governed by a Collective Agreement, the company should comply with the terms in a CA.

ii. In case, any document in the custody of the employer will have to be examined to furnish the explanation it should state that the facilities will be given for perusal of documents.

iii. He should be informed that if he fails to furnish the explanation within the stipulated time, it will be presumed that he has no explanation to offer and appropriate disciplinary action will be taken against him.

Procedure to be adopted regarding issue of show cause letter

i. It can be handed over to the employee concerned and his acknowledgement obtained in the copy thereof by a responsible officer

ii. It would be advisable if it is handed over to the accused employee in the presence of two officers who can endorse the copy of the

letter as witness if he refuses to accept the letter. The officer handing over the letter can make an endorsement in the copy of the letter that he handed over in the presence of the two officials who can also endorse accordingly in the copy of the letter.

iii. The original of the show cause letter can thereafter be sent to the accused employee by registered post with a covering letter stating that it is being sent by registered post as he refused to accept same when handed over (given the date, time and place) in the presence of two officials (state their names).

iv. An additional charge can be embodied in the show cause letter regarding the refusal to accept the show cause letter.

v. The accused employee may sometimes refuse to accept the registered letter. In such a situation, it is important to ensure that an endorsement is made by the postman to say that the accused employee refused to accept the letter.

vi. The letter referred to above returned to the employer can be sent a second time also by registered post and if it is returned, a second time with the endorsement “Refuse to Accept” the employer can take it that the employee is no longer interested in his employment.

vii. In case the accused employee, who refuses to accept the letter, is a member of a Trade Union, his letter can be sent to the Trade Union stating why it is sent to the Union.

Reply to Show Cause Letter

i. The employer should consider the reply to the show cause letter and decide whether it is acceptable or not. If the explanation is accepted, the employee will have to be re-instated with back wages for the period of suspension.

ii. If the employee does not furnish his explanation, the employer will have to take appropriate disciplinary action on the presumption that he has no explanation to offer.

iii. If the employee in his explanation denies the charges the employer should proceed to conduct a domestic inquiry. The employee should be informed in writing that his explanation cannot be accepted and that it has been decided to conduct a domestic inquiry.

In the letter regarding the domestic inquiry the employee will be informed the date, time and place of the inquiry and also that he is granted permission to the following :

i. To give evidence on his behalf

ii. To produce witness and request the employer with prior notice to release any employee to give evidence on his behalf

iii. To cross examine any witness.

iv. To have an employee of the company who does not have supervisory power to represent him at the inquiry (the name of the employee should be informed in time for the employer to release him).

v. The representative shall function as an observer

The letter regarding inquiry should state that if he is absent without sufficient cause, it will be conducted exparte.

The Inquiry Officer

The Inquiry Officer is ordinarily an official of the company who is an Executive above the rank of the employee concerned. He should not be a witness to any of the incidents where a charge is leveled against the employee. He should not be the official, who conducted the preliminary investigations. The officer who signed the show cause letter can conduct the inquiry. Inquiry officer can be an outsider – an independent person who has no interest in either the employer or employee. A lawyer too can hold an inquiry.

The Inquiry officer holds the position of a Judge and he must be impartial. The rules of natural justice require that he has an open mind and is not biased against the accused employee. “Nothing is to be done which creates even a suspicion that there had been an improper interference with the cause of justice”. Lord Howard C.J 1924 IKB 256.

Representation at Inquiry

Representation would be in keeping with the practice hitherto adopted at the company or workplace. Representative is generally a co-employee or a Branch Union official. A non-participatory observer is permitted to represent an accused employee. The observer concerned is one who is not having supervisory power over the accused employee. He does not participate in the proceedings but he is permitted to take down notes if he considers it necessary. He is granted duty leave by the employer.

Procedure at the Inquiry

The inquiry should commence with the inquiry officer reading the charges leveled against the accused employee and asking the accused employee as to whether he pleads guilty or not. The charges should be explained to the accused in the language he is familiar. If he pleads guilty, he should be asked whether he has any statement to make. If he does not plead guilty, his plea on each charge should be recorded. He has to be explained the scope of the inquiry and what he is expected to do. If he pleads not guilty the inquiry should commence with the employer or his representative leading evidence for the prosecution.

The accused employee should be permitted to be present when the proceedings are recorded. Evidence should be recorded in direct speech and in question and answer form. Any statement recorded in the absence of the accused employee should not be produced and led as evidence. Leading questions should not be allowed. When a witness completes his Evidence-in-chief, the accused employee should be given the opportunity to cross examine the witness. If the witness wants to make any statement he can be allowed to do so. Thereafter, re-examination of the witness will be done on only matters arising out of cross examination. In the event of fresh evidence being introduced in re-examination, the accused employee should be given an opportunity to cross examine the witness on the fresh evidence. Recording of evidence must be in a language the accused employee is familiar or else it should be translated to him in the language he understands.

When the recording of evidence of a witness is completed, he should be asked to sign each page of the record. If he refuses to sign then the inquiry officer and the prosecution officer should sign the record confirming it to be a correct record of the evidence

of the witness. When he refuses to sign the record the reasons for refusing will have to be recorded, and the inquiry officer will have to be make his observations. If the accused employee takes any objections, the inquiry officer will have to record same, obtain the comments of the prosecution on the objections and thereafter make his ruling on the objection. If evidence is taken down in shorthand, the notes of shorthand should be read over to the witness and he could be asked to sign the shorthand notes. The shorthand notes should be typed as early as possible and the witness should be allowed to read and sign same.

When the evidence for prosecution is concluded, the accused employee should be asked to make a statement and give evidence if he desires. If he gives evidence, it has to be recorded. He will be thereafter cross examined. If he refuses to give evidence or make a statement he cannot be compelled to do so but a record should be made to that effect. If he refuses to sign the evidence recorded, the reason for doing so will have to be recorded and the inquiry officer will have to make his observations in this regard.

After the evidence of the accused employee is recorded, he should be afforded the opportunity to lead the evidence of his witness. The inquiry officer can at any stage recall any witnesses on his own or at the request of the employer or the accused employee. The request should ordinarily be allowed except when the inquiry officer has reasons to believe that this request is made without sufficient reasons only to prolong the proceedings. In case, it is considered necessary to amend any charge, the accused employee should be given sufficient notice in writing and the inquiry should thereafter proceed.

At the conclusion of the inquiry, the comments of the accused employee and his representative as to the manner the inquiry was conducted should be called for and it should be recorded. The inquiry officer should initial every document marked in evidence and take charge of the productions ana marked documents. Both parties should be given an opportunity to make oral or written submissions at the conclusion of the inquiry.

Findings of the Inquiry

The inquiry officer in his report should give his findings on each charge and the reasons for such ,

findings. He should state in specific terms whether the accused employee is guilty of each charge. He can find the accused employee guilty of a lesser charge. For example, if he is charged for misappropriation, he can find him guilty of negligence he can comment on the demeanor of any of the witnesses who gave evidence at the inquiry. In his report, he can deal with any extenuating or aggravating circumstances he had observed. He may consider evidence on a balance of probabilities. The inquiry officer cannot make any recommendation regarding punishment, which is a matter outside his purview. The report should be made within a reasonable time of the conclusion of the inquiry. Collective Agreements impose a time limit within which the accused employee is informed of the findings of the inquiry and punishment if he is found guilty.


When a grievance remains unsettled, it takes the shape of an industrial dispute which could be handled by the Commissioner of Labour as provided for in the Industrial Disputes Act No. 43 of 1950. He could by conciliation settle the dispute and draw up a Memorandum of Settlement under Sec. 12(1) of the Industrial Disputes Act or refer it to voluntary arbitration. When parties do not consent to a reference to arbitration the Minister of Labour refers the dispute to compulsory arbitration to a Labour Tribunal or an Arbitrator to an Industrial Court for settlement by adjudication. When the Commissioner of Labour is unable to settle the dispute by conciliation, he advises the workman to seek relief from the Labour Tribunal within the stipulated period of 03 (three) months from the date of termination of employment.

“Lawyer: an individual whose principal role is to protect his clients from others of his profession.” Anonymous •

“Old lawyers never die, they just lose their appeal.” Anonymous

“Lawyers: persons who write a 10000-word document and call it a brief.” Franz Kafka (Czechoslovakian Novelist)