LANKA LOHA HOLDING (PVT) LTD v. THE ATTORNEY-GENERAL

005-SLLR-SLLR-2002-3-LANKA-LOHA-HOLDING-PVT-LTD-v.-THE-ATTORNEY-GENERAL.pdf


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Lanka Loha Holding (Pvt) Ltd. v. The Attorney-General
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LANKA LOHA HOLDING (PVT) LTD
v.
THE ATTORNEY-GENERAL
COURT OF APPEALUDALAGAMA, J. ANDNANAYAKKARA, J.
CALA NO. 299/99MARCH 21 AND 22, 2002
Rahabilitation of Public Enterprises Act, No. 29 of 1991, sections 2, 5 (1) and9 – Compulsory vesting of shares – Conversion of Government-Owned BusinessUndertakings – Public Companies Act, No. 23 of 1987 – Companies Act, No.17 of 1982 – Determination of question of compensation by Compensation Tribunal_ Is the Tribunal bound by the principles of natural Justice? – Could it deviseits own rules and procedure? – Judicial review and appeals – Can the appellantraise questions on legality such as violations of natural justice? – CompensationTribunal functus – Can there be de novo proceedings? – Interpretation Ordinance,section 6 (3).
Held:
The denial of a hearing was contrary to all the basic principles of naturaljustice.
Even in situations where express provisions have not been made for theobservance of natural justice by a tribunal there is an obligation on thepart of the Statutory Tribunal to follow the rules of natural justice whenmaking determinations which affects the rights of individuals.
Although a tribunal is free to devise its own procedure, it does not meanit can act in a manner which violates the basic principles of natural justice.
Per Nanayakkara, J.
“Although judicial review and appeals are two distinct procedures, a partyis not precluded from raising issues relating to principles of natural justice bothby way of appeal as well as by way of judicial review.’
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Even though the Tribunal is functus, once a vesting order is made in termsof the provisions of the Act proceedings already commenced can becontinued until the conclusion.
APPLICATION for Leave to Appeal from an Order of the Compensation Tribunalestablished in terms of s. 5 (1) of Act, No. 29 of 1996.
Cases referred to :
The Kahatagaha Mines Ltd. v. Fernando – 78 NLR 273.
Sandesa Ltd. et al v. Sirimavo Bandaranaike – (1980) 2 Sri LR 156.
Sri Lanka Broadcasting Corporation v. De Silva – (1981) 2 Sri LR 220.
Elarka v. Oil Bourne Shipping Co. – (1978/79/80) SLR 55.
K. N. Choksy, PC with Lalanath de Silva for petitioner.
F. Jameel, Senior State Counsel for respondents.
Cur. adv. vult.
October 18, 2001NANAYAKKARA, J.
The petitioner was a Company duly incorporated under the laws ofSri Lanka, the shares of which were subsequently compulsorily vestedin the Government of Sri Lanka under the provisions of the Rehabilitationof Public Enterprises Act, No. 29 of 1996.
The precursor of the petitioner Company was the State HardwareCorporation which was a State-owned Corporation before privatization.On the 5th of November, 1990, in pursuance of the Governmentprivatization policy the State Hardware Corporation was privatized andthe petitioner-company was incorporated under the provisions of theCompanies Act, No. 17 of 1982 read with the Conversion of theGovernment-Owned Business Undertakings into Public CompaniesAct, No. 23 Of 1987.
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Lanka Loha Holding (Pvt) Ltd. v. The Attorney-General
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In terms of a memorandum of understanding (MoU) entered intobetween the Government and the petitioner-company on the 24th ofOctober, 1991, the petitioner-company acquired 90% of the sharesof the Company for the purchase price of Rs. 30,000,000 of which15% of the said shares were later transferred to the Merchant Bankof Sri Lanka for a consideration of Rs. 5,000,000. Thereupon, thepetitioner-company took over the management and control of theprivatized venture and the company gifted the remaining 10% of theshares to the employees. Subsequently, by virtue of a vesting orderpublished in the Gazette Extraordinary No. 960/11 dated 28. 01. 1997,under the provisions of section 2 of the Rehabilitation of PublicEnterprises Act, No. 29 of 1996, the President of Sri Lanka vestedthe administration and management of the petitioner-company with theGovernment. Accordingly, its shares were vested with the Secretaryto the Treasury for and on behalf of the Government.
The 2nd, 3rd and the 4th respondents who were appointed bythe President of Sri Lanka to constitute the Compensation Tribunalin terms of section 5 (1) of the Rehabilitation of Public EnterprisesAct, No. 29 of 1996, were entrusted with the task of determining thequantum of compensation, if any payable to the shareholders of thepetitioner-company, consequent to the compulsory vesting of its sharesin the Government.
This application for leave to appeal is a sequel to an award madeby the 2nd, 3rd and the 4th respondents who constituted theCompensation Tribunal in respect of a claim for compensation madeby the petitioner-company. The 1st respondent who is the Attorney-General has been made a party by the petitioner-company as theclaim is made against the State.
The petitioner-company lodged a claim of compensation in a sumof Rs. 90,558,000 for the 5,625,000 shares of Rs. 10 each ownedby it for the compulsory acquisition of its shares by the Government.
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The Compensation Tribunal which went into the question ofcompensation payable to the petitioner-company, after several datesof hearing by an award dated 11th November, 1996, determined thatno compensation whatsoever was due to the petitioner-company.
Being dissatisfied and aggrieved by the said award the petitioner-company has presented this application for leave to appeal claiming,
inter alia, setting aside the award made on 11. 11. 1999 an awardof a sum of Rs. 90,558,000 as compensation.
The basic complaint of the petitioner-company is that, although theCompensation Tribunal held several sittings on different dates, thepetitioner-company was not notified of the sittings held on certaindates, and proceedings on these days were conducted in the absenceof the petitioner-company, thereby violating the basic principles ofnatural justice of audi alteram partem. The day on which the evidenceof the important matters pertaining to a loan of Rupees 25 millionobtained by the petitioner-company from the Merchant Bank, and onthe days on which evidence of the People’s Bank and the NationalDevelopment Bank were tendered, the petitioner-company wasprevented from presenting itself before the Tribunal as no notice ofthe sittings were given to it and thereby the petitioner was deprivedof the opportunity of testing the veracity of the evidence of importantwitnesses given at the Tribunal.
The petitioner has also drawn the attention of this Court to anotherimportant occasion when the evidence of the Public Enterprises ReformCommission (PERC) officials had been led in regard to the valuationof the shares, assets and liabilities in the absence of the petitioner.
The petitioner-company has also averred that the Tribunal, not onlyhas taken into account certain documents which were prejudicial to
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the interests of the petitioner-company without its knowledge, but ithas also failed to take into account some documents which were ofvital importance to the petitioner-company.
The petitioner-company has also contended in their submission,every shareholder of a vested privatized public venture or enterpriseis entitled to reasonable compensation in compliance with section5 (2) of the Rehabilitation of Public Enterprises Act, No. 29 of 1996and the Compensation Tribunal set up under the Act is entrusted with
the task of determining a question affecting the rights of the subjects.When a Tribunal is called upon to determine a question affecting therights of subjects, it is expected to observe the principles of naturaljustice of audi alteram partem, when making a determination.
The learned State Counsel representing the respondents, respondingto the submissions made on behalf of the petitioner-company hasargued that, in terms of the provisions of the RehabilitationAct, No. 29 of 1996, the Compensation Tribunal was only requiredto determine reasonable compensation to be paid in respect of thecompulsory acquisition of the shares, and the Tribunal which was setup for this purpose was composed of experts in the field of valuation,therefore the Tribunal was entitled to set for itself its own procedurein arriving at a determination. She also contented that the CompensationTribunal was not obliged to follow or observe inflexibly set procedures.
It was also the position of the State Counsel that the petitioner-company which had obtained a loan of Rs. 500,000 from the MerchantBank of Sri Lanka, towards the payment of the part of purchaseconsideration of the privatized venture, for which loan the petitioner-company had mortgaged a property belonging to it as security, cannotnow contend that the said mortgage was invalid and the said mortgage
bond should not have been taken into account as a liability of the
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petitioner-company in determining the question of quantum ofcompensation.
Learned State Counsel has also argued that the petitioner-companyhas not made any attempt to have the vesting order set aside, insteadthe petitioner-company has only disputed the determination of theCompensation Tribunal.
Counsel for the respondent has further contended that the merefact that the 2nd to 4th respondents have not observed the principlesof natural justice in arriving at a determination does not per se renderthe procedure adopted by the Tribunal unfair and irregular.
Learned State Counsel adverting to the relief sought by the petitioner-company has also submitted that the grounds urged by the petitioner-company can only form the basis of ah application for judicial reviewin the nature of prerogative writs and in any event they cannot bethe basis of an application for leave to appeal.
With this brief reference to the salient submissions made byrespective counsel on the question of law and facts, I shall proceedto examine the validity 6f the determination and the procedure adoptedby the 2nd to 4th respondents who constituted the CompensationTribunal.
It is an admitted fact in this case although several sittings wereheld by the 2nd to 4th respondents who constituted the CompensationTribunal to determine the question of compensation payable to thepetitioner-company, in respect of its compulsorily acquired shares, thepetitioner-company had no notice of certain days on which the sittingswere held and thereby the petitioner-company was deprived of theopportunity of participating in the proceedings of the Tribunal on those
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days. It is also an accepted fact that some days on which the sittingswere held in the absence of the petitioner-company, important matterspertaining to the liability of the petitioner-company in respect of the 130mortgage bond executed in favour of the Merchant Bank had beentaken up and discussed by the Tribunal. The Tribunal has also goneto the extent of admitting valuation reports from an important institutioncalled the Public Enterprises Reform Commission (PERC) without theknowledge of the petitioner-company and in its absence. It is alsoan incontrovertible fact that the petitioner-company has not beenafforded an opportunity of producing important documents which theythink relevant and material to their case. In short the petitioner-company had not been given an opportunity of testing the veracityof the witnesses and the authenticity of the documents produced 140against it at the inquiry before the Tribunal, nor have they been givenan opportunity of producing documents material to them.
It is also evident that the Compensation Trubunal was vested withan authority of determining a matter which affects the rights of individuals,therefore there was a duty cast on that Tribunal to exercise its authorityfairly and reasonably. It is also undisputed that the petitioner-companywas denied a hearing at the inquiry before the Compensation Tribunal.
The denial of a hearing was contrary to all the basic principles ofnatural justice. Observance of principles of natural justice is somethingbasic and fundamental to our system of justice when making decisions isowhich are prejudicial to the interests of all individuals, whether thosedecisions were of judicial or quasi judicial nature or made by anadministrative tribunal. In this connection, observations made by hisLordship the Chief Justice Tennekoon in the case of The KahatagahaMines Ltd. v. Fernando,™ would be pertinent in putting the issue inits correct perspective :
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“His function, therefore, immediately becomes a judicial or atleast a quasi judicial function. This must necessarily be so, becausethe determination of the Chief Valuer is binding on the person fromwhom the property was acquired and on the State Graphite 'soCorporation, and also on any other person who had lesser interestsin that property. If there was any doubt in regard to the matter,the Legislature made provision in subsection 2 of section 64 . . .”
Even in situations, where express provisions have not been madefor the observance of natural justice by a tribunal, there is an obligationon the part of the Statutory Tribunal to follow the rules of natural justicewhere making a determination which affects the rights of individuals.
The learned Counsel for the State contends that the Tribunal isnot bound by the principles of natural justice and it may devise itsown rules and procedure in making a determination in terms of the mprovisions. I find myself unable to subscribe to this contention of thelearned State Counsel. Although a Tribunal is free to devise its ownprocedure, it does not mean it can act in a manner which violatesthe basic principles of natural justice.
Learned State Counsel has also submitted that the grounds urgedby the petitioner-company can only form the basis of an applicationfor judicial review in the nature of prerogative writs. But, it shouldbe observed, that this contention of the learned State Counsel is notwithout any merit as the examination of the relevant authorities andTreaties on the subject of judicial review will make it evident that '«>although judicial review and appeals are two distinct procedures, aparty is not precluded from raising issues relating to principles ofnatural justice both by way of appeal as well as by way of judicialreview. In this regard, reference to a passage from Administrative Law,
7th edn. by H. W. R. Wade, cited by the learned Counsel for thepetitioner would be appropriate :
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“Appeal and review are in principle two distinct procedures,appeal being concerned with merits and review being concernedwith legality. But, in practice an appellant will often wish to raisequestions which strictly are questions of legality, such as violationsof natural justice or some objection to the tribunal’s jurisdiction.
It is important that this should be freely allowed, since otherwisemany cases could not be fully disposed of on appeal.”
State Counsel also states that the Compensation Tribunal is functusand is not in existence now and even if the Court holds that theprocedure adopted in making the determination by the tribunal isirregular and flawed as the provisions of the Rehabilitation of PublicEnterprises Act, No. 29 of 1996 in terms of section 9 have ceasedto be operative the Court cannot remit the case back to the tribunalfor proceedings de novo. It is pertinent at this stage to refer to z°°section 9 of the Act. The section states that the provisions of theAct shall be operative for a period of six months from the date ofcommencement of the Act, if the provisions of the Act cease to beoperative after a period of six months from the date of thecommencement of the Act, as learned State Counsel pointed out, theoperation of or acting under the allied sections consequent to a vestingorder made under section 2 of the Act would be rendered impracticable.
For instance, if a vesting order is published in the last month of thevalidity of the Act. a tribunal which is expected to make its determinationwithin 6 months, would not be able to act as stipulated in the Act. 210If we were to go by such interpretation the objective and the purposefor which the Act was enacted, would be reduced to an absurdityand acting within the parameters of the Act would be a practicaldifficulty.
The decision reached in the case of Sandesa Ltd. et at v. SirimavoBandaranaike,<*> puts this beyond any manner of doubt when the Courtof Appeal exercising its appellate jurisdiction having set aside thejudgment remitted the case back for a fresh hearing to the originalCourt on the ground of violation of the principles of natural justice.
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It should also be observed when an Act provides a remedy by way 220of appeal as provided by section 5 (b) an aggrieved party is expectedto follow that procedure. The reasoning adopted in the cases of SriLanka Broadcasting Corporation v. de Silva™ and Elarka v. Oil BourneShipping Co,™ put the issue beyond manner of doubt.
Therefore, I am of the view that section 9 of the Act by necessaryimplication, refers only to the period during which the President ofthe Republic of Sri Lanka can make a vesting order under section2 of the Act, as suggested by the learned Counsel for the petitioner-company. Once a vesting order is made in terms of the provisionsof the Act, proceedings already commenced can be continued until 230the conclusion. This interpretation of the section will also be inconsonance with section 6 (3) of the Interpretation Ordinance whichmakes provision for the continuance of pending or incomplete actionsin the event of repeal of any written law, as contended by the Counselfor the petitioner.
Therefore, having regard to all the circumstances of the case, andfor the reasons set out herein, I set aside the award made by theCompensation Tribunal on 11. 11. 1999 and remit the case back tothe Tribunal for a fresh determination of an award with proper noticeto the petitioner in compliance with the rules of natural justice. 240
I make no order for costs.
UDALAGAMA, J. – I agree.
Application allowed.