Public interest activists Vasudeva Nanayakkara and Nihal Sri Ameresekere have become intervenient-petitioners in the fundamental rights case filed by Laugfs Chairman Mr. W.K.H. Wegapitiya last month against the oil hedging agreements with the Ceylon Petroleum Corporation (CPC) and several banks.
Both were instrumental in bringing the fundamental rights petition on the Lanka Marine Services (LMS) case. The duo in separate petitions say the CPC had no authority to engage in hedging under the CPC Act and that the banks should have also ascertained if the CPC was authorized to involve itself in hedging through derivative instruments.
Mr Ameresekere’s petition says that there have been widespread instances of scams and frauds associated with hedging as well as with derivative instruments. Hence, the petition states that espousing in dabbling in hedging through derivative instruments ought to have been with the exercise of utmost caution and with requisite specialized expertise obtained through due process. What has been espoused and carried out, through referred to as 'Petroleum Oil Hedging' in effect has been speculating and/or gambling and/or betting on the movement of petroleum oil prices, on 'motional quantities' through a scheme of 'hedging through derivative instruments.'
The petition says that 'Hedging through Derivative Instruments' is a separate speculative gamble, distinctly different from the purchasing of petroleum oil in a volatile market or otherwise and is completed unrelated and alien to the actual purchasing of petroleum oil. Hence, linking the two in the given facts and circumstances was a misleading deception, resulting in the given catastrophic situation.
According to the petition, the CPC was only authorized and empowered to carry out the activities referred to in the CPC Act, more particularly Section 5B thereof, which was essentially and solely to deal with petroleum products. Hence, 'Hedging through Derivative Instruments' was not a business activity that the CPC was authorized and empowered to engage and/or dabble in. Furthermore, in the absence of such statutory power and authority, it could not have been suggested that the CPC embarks upon and/or engages in such separate speculative business active.
On the other hand, the petition says commercial banks operate under a license granted by the Central Bank (CB). Accordingly, commercial banks are subject to the regulatory directives of and the supervision by the CB. A bank is required to have ascertained as to whether the CPC was authorized and empowered to have dabbled in speculative business of hedging through derivative instruments.
The relationship between a bank and its customer is of a highly fiduciary nature where a customer would act with utmost trust and good faith in a bank. Therefore, one does not expect a bank to mislead and/or compromise and/or cheat and/or take undue advantage of and/or defraud a customer, whereas a bank is expected to act to protect and safeguard the very interest of a customer as a consequence of the fiduciary professional relationship.