Commission Takes Control - International Law Office

The Securities and Exchange Commission of Sri Lanka monitors companies listed on the Colombo Stock Exchange to ensure fair trading on the securities market and to safeguard the rights of investors. Companies must submit to the surveillance of the commission and act within the law or face losing their listing on the Colombo Stock Exchange.

The decision in The Securities and Exchange Commission of Sri Lanka v Kotagala Plantations Ltd (SC Appeal 33/99) confirms and highlights the role of the commission while serving as a warning to companies that seek to mislead investors/shareholders and then seek refuge in legal technicalities.

The commission is empowered by the Securities and Exchange Commission Act 36 of 1987 (as amended) to achieve various objectives, including the regulation of the securities market and the protection of the interests of investors. This act allows the commission to formulate rules to achieve these objectives.

The commission licenses the Colombo Stock Exchange. Any company that seeks to be listed on this exchange must comply with the rules. Contravention of these rules is an offence under the act.

Background

On October 3 1996 the respondent informed the shareholders that it had acquired a controlling interest in a company called Agarapatana Plantations Ltd through a wholly owned subsidiary called Lankem Plantations Holdings Ltd. However, by June 3 1996 the first respondent company's shareholding in Lankem Plantations Holdings had fallen from 99.9% to 49%. Consequently it no longer held a controlling interest in Agarapatana Plantations Ltd.

The commission rules regarding the disclosure of information by public companies make it compulsory for shareholders to be informed of such an event. The respondent failed to comply with this rule, thus committing an offence punishable under the act.

Decision

Counsel for the respondent attempted to establish that the rules had no legal force due to amendments made to the principal enactment. However, the Supreme Court rejected this contention as "unsustainable in law", as it would render the listing system useless and do away with a public company's duty of disclosure.

Consequently the appeal was allowed.

For further information on this topic please contact Simon Senaratna at Simon & Associates by telephone (+94 1 38 19 06) or by fax (+94 1 38 19 07) or by e-mail (simona@eureka.lk).

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