Monetary Board’s Authority to Impose Salary Caps on Finance Companies

The Supreme Court recently affirmed the broad regulatory powers of the Central Bank’s Monetary Board under the Finance Companies Act No. 78 of 1988, allowing it to issue directives, including salary regulations for employees and directors of financial institutions.

The case, centered on a dispute between a Finance Company and former directors over unpaid salaries. Asian Finance argued that it was acting under directives issued by the Monetary Board, which capped the salaries of its directors in response to the company’s financial instability following the collapse of Golden Key Credit Company, a related entity within the Ceylinco Group. These salary caps were a key part of regulatory measures imposed to stabilize the company and protect depositors. Asian Finance complied with these caps, arguing that the company was legally obligated to follow the Board’s instructions under the Finance Companies Act. However, former directors challenged the company’s failure to pay their salaries in full, leading to orders from the Commissioner of Labour for salary arrears.

 “……As revealed before us, the Finance Companies Act No. 78 of 1988 had provided wide powers with the 5th Respondent (Monetary Board) and the preamble to the said Act has provided;  

“An Act to provide for the control and supervision of Finance Companies and to provide for matters committed therewith or incidental thereto” 

Among the provisions of the said Act, Section 9 provides wide powers with the Monetary Board and the powers vested with the Monitory Board had been explained under sub sections (a) –(r) of the said section. The said Section was amended by the Finance Companies Amendment Act No. 23 of 1991 by introducing as subsection (rr) the following provisions, 

“(rr) the remuneration and other pay to Directors or employees of finance companies by way of salary, allowance, prerequisite and reimbursement of expenses.” 

In addition to the above, section 9 (3) of the Finance Companies Act further provided provisions to challenge the decision of the Monetary Board before a Competent Court. However, in the instant case, the Petitioner had not challenged the decision of the Monetary Board and therefore bound to implement the directions.

Even though the Respondents argued that Section 9 (rr) of the Finance Companies Act (as amended) had not provided any powers with the Monetary Board to reduce the salaries of the employees of the Finance Companies, I cannot agree with the said argument, since Section 9 of the Finance Companies Act had provided several provisions to reduce and control the mismanagement of Finance Companies in order to secure the rights of depositors who invested monies with such Companies. – Justice Vijith K. Malalgoda

SC Dismisses Appeals Due to Suppression of Material Facts

However, the Supreme Court looked into the fact that the Court of Appeal had observed that one of the directives issued on January 14, 2011, specifically instructed the Finance Company to resolve employee disputes according to existing labour laws and company policies, a document (1R2) that AFL chose to omit in its submissions. The Court also found a similar directive (P1-K) was part of the official record but was not referred to by AFL in its arguments.

“…..In addition, the Court of Appeal had come to a conclusion that the Petitioner in both cases were guilty of suppression and/or misrepresentation of material facts. In this regard the Court of Appeal was mindful of the decisions in the landmark judgment on this point Alponso Appuhamy v. Hettiarachchi 77 NLR 131 at 135 along with several other cases including Hulangamuwa v. Siriwardena (1980) 1 Sri LR 275, Collettes Ltd v. Commissioner of Labour (1989) 2 Sri LR 6 and Blanca Diamonds (pvt) v. Wilfred Ven Els (1997) 1 Sri LR 306. As observed by this Court, the Petitioner was silent on 1R2 in CA 37/2013 as well as failed to comment on the directive issued by the 5th Respondent in P1-K in both Applications even though the said document was filed along with the bundle of documents tendered to Court. The Court of Appeal having considered the observations made by Sirimanne J in Atula Ratnayake v. Jayasinghe 78 NLR 35 at 39 to the effect; “The filling of such a documents without my reference to its in the petition, is, as I said earlier, meaningless and only meant to give the petitioner an excuse after having misled the Court into a wrong belief. This type of action must be viewed with strong disapproval andone hopes that it would not be followed in future.” – Justice Malalgoda