Court refuses to vacate interim order on proposed sale of HNB shares to ADB

„Court says interim orders be continued until determinations could be made as to which party would be most inconvenienced by share sale „Respondents argue concerns of dilution of shares would only be valid when issuing shares to shareholders within the co

Business tycoon Harry Jayawardena last week managed to prevail against the attempts of the majority of the Hatton National Bank PLC (HNB) director board to vacate an interim order obtained by Jayawardena’s Stassen group to halt the process of gaining shareholder approval to issue HNB shares to the Asia Development Bank (ADB).

High Court Judge Shiran Gooneratne ordered that the interim order Jayawardena’s Stassen group (petitioner) obtained last October restraining HNB from holding an extraordinary general meeting in the same month be continued until determinations could be made as to which party would be most inconvenienced by the said share issuance.

“In the circumstances, if the interim orders are revoked or set aside before a proper inquiry is concluded, there is a possibility that the petitioner will sustain greater inconvenience and loss than the first respondent bank. Therefore, I find that the interim orders already issued be continued until the final determination of this action,” Gooneratne said.

He said that the burden of proof on the balance of convenience falls on the Stassen group, although HNB’S claims that not issuing the shares to the ADB would cause prejudice to the respondents, banking sector and to the economy have not been fully satisfied and that there is no inadequacy of capital in HNB.

The respondents to the case included HNB, its director board, its company secretary, Stassen group companies and Panchalingam Associates (Pvt.) Ltd.

The petitioner had found issues in the facts that its shareholding in HNB would be diluted if the shares are issued to the ADB, that Stassen as an interest group had not issued a special resolution approving the change in shareholding and a dispute on the price of the shares to be issued to the ADB.

Jayawardena’s daughter Sanjivani Jayawardena and his protégé Damien Fernando had supported the Stassen group, which owns 17.85 percent of shares in HNB, but only 10 percent of voting rights, under the Banking Act, which limits the control shareholder interest in a bank.

Attorneys appearing for HNB and its Managing Director/ceo Johnathan Alles had last November petitioned for the variation and/ or revocation of the interim orders, supported by 10 of the 12 HNB directors including Chairman Rienzie Arseculeratne and the company secretary. They had argued that concerns of dilution of shares would only be valid when issuing shares to the shareholders within the company and not to outsiders under HNB’S Articles of Association and that issuing shares to the ADB would only require a special resolution being passed by the shareholders. Further, they had also argued that the Stassen group’s shareholding above the limit specified by the Central Bank is illegal and that they could not benefit form their own wrongdoing.