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Supreme Court dismisses FR case against Treasury Bond fiasco

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Melissa Pereira

Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

In a major development, the Supreme Court yesterday dismissed the Fundamental Rights application against the much-publicised 30-year Treasury Bond issue of 26 February seeking an independent inquiry into the Central Bank Treasury Bond issue and the Bank's Governor Arjuna Mahendran.

The move has effectively cleared both Governor Arjuna Mahendran and primary dealer Perpetual Treasuries and others sighted as respondents. 

In dismissing the FR application filed by good governance activists Dr. G. Usvattearachchi, Dr. A.C. Visvalingam and Chandra Jayaratne, the Supreme Court said there was no legal basis to issue notice.

Originally the petitioners in their application expressed the belief that the Rs. 1 billion 30-year Treasury Bond issue contained serious irregularities, lacked transparency and did not adhere to the accepted best practices of good governance and was possibly tainted by conflicts of interests and related party transactions.

The petition named eight respondents including Governor Arjuna Mahendran, his son-in-law Arjuna Aloysius, Deputy Governor P. Samarasiri and Secretary of the Finance Ministry. 

The petitioners said that the Bond issue on 27 February by the Public Debt Department of the Central Bank lacked transparency and resulted in a “significant incremental unwarranted” cost for Sri Lanka. 

Yesterday it was submitted by the Deputy Solicitor General Milinda Gunathilake that the petitioners were seeking to get the SC to frame guidelines and rules on the issue of Treasury Bonds without even citing in the petition that there were existing rules and regulations governing the issue if bonds and the relevant statute the registered stocks and securities ordinance.

It was submitted that one cannot request the court to make guidelines and regulations when there are existing rules and regulations which have not been challenged to be inadequate and/or erroneous.

The petitioners though instructed by court to show any illegality or irregularity on the bids by Perpetual or the auction, were unable to point to any violation of the rules or statutes governing the issue of bonds.

Nihal Fernando PC, Counsel for the sixth respondent, Perpetual, submitted that the claimed loss to the Government by petitioners was imaginary.

In fact when court questioned the counsel for the petitioners as to how the alleged loss was calculated, he admitted that it was on the basis of an assumption that if the higher value would be accepted was advertised.

However, it was submitted by the counsel for Perpetual, with facts and figures obtained from the Central Bank, that out of the six 30-year bond auctions, this particular bond auction came at the lowest cost to the Government, calculated on the weighted average yield.

It was also submitted that the petitioners had not set out in the petition the manner in which the auction system worked and that in the past, the majority of the requirements of the Government were sourced by private placements and all parties aware by information available in the public domain, the requirements of the government was far greater than that which was advertised and more particularly when the CBSL had not had a bond auction in over a period of two months.

It was also asked as to how other primary dealers bid more than the offered amount.

Romesh De Silva PC, appearing for the CB Governor, said that there was absolutely no fault on the part of the Governor and the decision to increase the requirement was that of the Government’s and that the Governor had not violated statutory provisions.
Kanag-Iswaran PC argued, on behalf of the Monetary Board, that there was a comprehensive set of rules governing the Monetary Board and the Public Debt Department of the Central Bank that had not been violated and the applicable rules and regulations had not even been cited by the petitioners. Saliya Peiris with Pulasthi Hewamana appeared for the petitioners.

K. Kanag -Iswaran PC with Buddhika Illangathileke appeared for the Monetary Board and the third and fourth respondents.
Romesh De Silva PC with Sugath Caldera appeared for the Governor of the Central Bank.

Nihal Fernando PC with Rajinda Jayasinghe, Ms. Romali Tudawe and Ms. Radheena De Alwis represented the sixth respondent, Perpetual Treasuries.

Deputy Solicitor General Milinda Gunathilake with Dr. Avanthi Perera S.C represented the Attorney General in this case.

The petitioners Dr. G. Usvatte-Aratchi is an economist and former member of the UN Secretariat in New York and Dr. A.C.

Visvalingam is a retired engineering consultant and former member of the Public Service Commission whilst Chandra Jayaratne is a former Chairman of Ceylon Chamber of Commerce.

The Monetary Board, Central Bank Governor Arjuna Mahendran, Deputy Governor and Chairman Treasury Bond Tender Committee P. Samarasiri and the Registrar of Public Debthave were cited as the first to fourth respondents. 

Additionally, the Policy Planning and Economic Affairs Secretary, Perpetual Treasuries, Arjun Aloysius and the Attorney General were the other respondents. The petitioners were praying among others for a declaration that the third, third and fourth respondents had not discharged their duties in a manner that was necessary for the preservation of public trust; The Monetary Board to carry out an independent inquiry by a competent panel of professionals well-versed in the rules, systems, procedures and processes applicable to the public debt management under the supervision of Court and to report thereon; and direct the Monetary Board and other associated respondents, in consultation with stakeholders, to formulate new systems, processes, rules and regulatory frameworks which assure transparency and the best good governance practices are in place in respect of future public debt issuance.

Courtesy: Daily Financial Times 14 May 2015

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