By Romesh Abeywickrema
THE Sunday Leader’s exclusive story on the recent report by banking law expert Dr. Wickrema Weerasooria on the dispute between the People’s Bank and Yashodha Holdings (Pvt.) Ltd. has sent shock waves through the People’s Bank board and its senior management who are said to be pressing panic buttons to meet the report’s findings. Dr. Weerasooria’s report has been discussed at length at two meetings of the bank’s board held on October 3, and October 24. The People’s Bank board currently comprises of Lal Nanayakkara (chairman), Asita Talwatte, Nimal Samarakkody, Dayantha Fernando, L.K. Ranasinghe, Sumanasiri Hulugalle and Lionel Samarasinghe.
The 200 page report by Dr. Weerasooria holds that the current board of directors of People’s Bank are in no way responsible for this huge lending fiasco and that the total responsibility must be borne by the board of directors for the period August 1994 onwards when the largest lending occurred. The then chairman was Dr. Gamini Fernando, a Central Bank economist and a political appointee of the PA government. It is well-known that Dr. Gamini Fernando was one of the main architects of the PA election manifesto of 1994 and had advocated the promise of bread at Rs.3.50 per loaf.
The report also reveals that the main reason for the suspension of credit facilities by People’s Bank to Yashodha Holdings in May 1996 was due to intervention by President Chandrika Kumaratunga. She had come to the bank, sat on Dr. Gamini Fernando’s chair and called for “the Yashodha file” and caused an immediate investigation and suspended all facilities which resulted in the breakdown of this banker-customer relationship. Thereafter, also at the instigation of the President, a Central Bank inquiry on Yashodha Holdings was commenced. The Inland Revenue Department also raided the Yashodha Holdings office and took away all its books and documents, thus paralysing the company from contesting the allegations leveled against it. Dr. Weerasooria’s report goes on to show that the CID was asked to institute charges against Yashodha Holdings on the Central Bank report. This direction to the CID was given by the then Secretary, Ministry of Finance — Dixon Nilaweera, acting on President Kumaratunga’s orders.
The next event in this saga was the imminent arrest of Yasasiri Kasturiarachchi on grounds of defrauding government property — the People’s Bank being a state institution. Kasturiarachchi avoided arrest by obtaining ‘anticipatory bail’ from the Colombo Magistrate’s Court. His Counsel was K.N. Choksy President’s Counsel, the current fiinance minister.
This was the first time that Choksy — who normally appears only in the Appeal Courts and in non-criminal matters — appeared in the Magistrate’s Court. It was also the first time that anticipatory bail was granted by a Sri Lankan court. Choksy had also earlier appeared for the customer, Yashodha Holdings in the Supreme Court and had for the first time suggested a “joint audit” to settle the dispute.
Acquitted of charges
In the criminal case filed by the CID in the Colombo High Court, the prosecution case collapsed after three witnesses were called and Kasturiarachchi was discharged and acquitted of all charges. President’s Counsel Tilak Marapone was his lawyer in that case. Dr. Weerasooria’s report shows that the Central Bank’s then Head of Bank Supervision (Piyatissa), whose report led to the CID criminal case against Yashodha Holdings had admitted to the Colombo High Court Judge that the criminal charges were defective and that no money was owed by Yashodha Holdings to the bank. This evidence is found in the High Court’s records.
Ironically, Piyatissa, the Central Bank’s head of bank supervision, on his retirement from the Central Bank, was made a consultant at the People’s Bank. This was also done at the request of the President. The report shows that the President’s political victimisation of Kasturiarachchi increased when he was elected as Basnayake Nilame of the Kataragama Maha Devale — an election that President Kumaratunga vehemently opposed.
Aftermath of Dr. Weerasooria’s report
Dr. Weerasooria’s report had found that the People’s Bank had been grossly negligent in the manner in which the bank had operated this account with the largest customer the bank ever had in its history of banking. Basically, the report found that while the customer’s total borrowings — all for very short terms not exceeding 90 days — had amounted to Rs.8.6 billion, the customer had deposited with the bank Rs.17.2 billion — twice the amount it borrowed. Yet, the bank had failed to protect itself and recover its debt. Also, the bank had failed to take adequate security. Hence, Dr. Weerasooria had suggested a settlement with the customer being asked to pay Rs. 100 million.
The Sunday Leader has learnt that several members of the People’s Bank board including its Chairman, Lal Nanayakkara was disposed to taking steps to settle this long standing dispute as recommended by Dr. Weerasooria. That legal expert had shown that even if the bank wins any of the cases now pending, the result will be worthless “paper decrees” as Yashodha Holdings — as a company — is no longer in business and the bank had also not taken any worthwhile securities.
At the People’s Bank board meetings on October 3 and October 29, the bank’s senior management had also advised the board to settle the matter rather than spending more money on lawyers.
The Bank’s senior management had told the board:
• That the bank’s position was very weak in relation to the securities taken and the bank’s court actions will be difficult to defend. The exposures made by Dr. Weerasooria would definitely strengthen the customer’s case since a judge can be asked to consider the report. This is because the bank agreed to the report and was a party to it.
• Admittedly, the bank’s answer filed in 1997 to the customer’s damages claim against the bank had been very poorly drafted. The bank had not carefully studied the documentation before drafting the answer. That answer which had been filed in court by the bank was defective.
• The board had also been told that the recent judgment consisting of a five member bench of the Supreme Court which prevents ‘parate execution’ of any property other than those owned by the actual borrower would help the customer — Yashodha Holdings because the properties mortgaged in this case did not belong to the borrower-customer, which was a company. That company was, for legal purposes, a separate entity from Kasturiarachchi.
• The bank had also lent to a company where there was no proper resolution passed by the company to borrow. This negligence of the bank’s part had been correctly highlighted by Dr.Weerasooria. When lending to the company, the bank’s staff had not studied the company’s memorandum of association which did not empower it to borrow in the way it did.
• The senior management had also agreed with Dr. Weerasooria’s emphasis about the negative nature of the final outcome or result. Any decree in the bank’s favour will be worthless as the company that borrowed has no assets from which to recover even if the bank wins any litigation. The bank had already incurred heavy expenditure by way of legal charges and the bank’s board should carefully consider the justification to spend more money when the outcome will be worthless in monetary terms.
Enter a retired accountant
The Sunday Leader understands that while a majority of the board were inclined to go for a settlement and to request Dr. Weerasooria to meet the board and outline his report, this was objected to by D.J. (Derek) Kelly, former GM/CEO of the bank who now functions as director, restructuring and strategic planning. Kelly, with the support of one board member, Asite Talwatte has introduced ‘a friend’ of both of them “to give his observations and opinion” on Dr. Weerasooria’s report. This ‘friend’ is one N.C. Vitarana of No. 14, Alvis Terrace, Colombo 3 with an email address firstname.lastname@example.org.
Vitarana is a retired partner of Ernest & Young which is Asite Talwatte’s audit firm. Formerly at the Inland Revenue, Vitarana had also worked in the Middle East and is now in his 70s and offers his services for private consultancies. Vitharana has asked the People’s Bank for a fee of nearly half a million — Rs.480,000 to be exact. This fee is to give his “observations/opinion on Dr. Weerasooria’s report.”
Many senior staff of People’s Bank are surprised at Vitarana’s entry into this dispute. Their argument is that the People’s Bank agreed to an inquiry by Dr. Weerasooria. The bank also paid half of Dr. Weerasooria’s fee while Yashodha Holdings paid the balance half. Now, the bank wants the report of the expert they agreed to, to be examined by another party at a very much higher fee.
What value addition can Vitarana make to Dr. Weerasooria’s report? What better qualifications or experience does Vitarana have over and above Dr. Weerasooria’s. Why did the bank not ask for Vitarana in the first place? Since state funds are used, should the People’s Bank’s board have in the first instance asked Dr. Weerasooria to meet the board and discuss his report with them? These are some of the relevant questions now posed at the bank.
All the accusing fingers for this mess-up points to Asite Talwatte, a director and to Derek Kelly. It is also ironical that Kelly’s salary at the Bank – which is well over Rs. 1 million per month with a house and other perks – is not paid by the monthly salaries structure of the bank. The hiring of Vitarana to examine Dr. Weerasooria’s report is also in clear contravention of Section 77 of the Banking Act of 1988 which provides secrecy of customer’s accounts. The penalty for a breach of secrecy is imprisonment of 18 months or a fine or both.
In Dr. Weerasooria’s inquiry, there was no breach of secrecy because the customer consented to the inquiry. In Vitarana’s case there is no such consent. Both Derek Kelly and Asite Talwatte who have engineered Vitarana’s inquiry have done so breaching this statutory duty of banking secrecy which is the foundation of all banking.
The bank’s senior management is also concerned about the very arrogant attitude adopted by Derek Kelly (an Irishman) whose term expires in April 2004. Kelly gets paid over Rs. 1 million every month apart from a house and other perks. His salary and that of five others are not reflected in the bank’s wages book but is credited every month to Management Systems Ltd. (MSL) — a subsidiary of Ernst & Young — where People’s Bank Board Director, Asite Talwatte is a senior partner. Thus, there is a lack of transparency in this deal as well. Every month Rs. 5 million (annual Rs.60 million) is paid to MSL for these “special salaries” of Derek Kelly and his wonder team.
Kelly also hires foreigners as he pleases. One such recent appointment is that of a German national Sylvia Bitter as a human resources consultant. This has angered Sri Lankan HR experts as well as the bank’s unions because Sylvia Bitter is not familiar with Sri Lanka’s labour and industrial relations laws.
Derek Kelly’s unwarranted interference with the day to day administration of the bank is resented by the Bank’s General Manager, Asoka de Silva. Also, recently one board member — an experienced banker — Dayantha Fernando took Kelly on. In a written memo to the board he accused Kelly of “acting like a bull in a china shop,” and his utter arrogance and lack of public relations. Questioning Kelly’s suitability, Fernando said that recently even Minister Karu Jayasuriya had to “tick Kelly off” at an official meeting concerning finances to the Ceylon Electricity Board.
The main indictment against the People’s Bank on the Yashodha issue is that all credit facilities that Yashodha obtained from other banks — totalling to Rs.2 billion were all settled without any dispute. It was only the People’s Bank that ended up with an alleged default. Having got one expert (Dr. Weerasooria) to examine the dispute, now the bank has asked another to examine the expert’s report. Where will this end other than in the payment of huge fees!
So now the recommendation to settle the Yashodha dispute has divided the bank’s board. On one side are Derek Kelly and Asite Talwatte with their mutual friend Vitarana (Vitarana writes to Kelly as “Dear Derek”) . On the other side are the other members of the board. Only time will tell how much state money the board will spend on lawyers and experts before concluding their credit fiasco with Yashodha — the largest corporate customer in Sri Lanka’s banking history, where the bank failed to recover Rs.8.6 billion when the customer had deposited Rs.17.2 billion!
Courtesy - www.thesundayleader.lk/archive/20031130/spotlight2.htm