A legal dispute has emerged over a Central Bank (CB) regulation where directors of banks cannot serve for more than nine years and/or have to quit when they reach 70 years, under which many directors have to quit by the end of this year.
This came after the Appeal Court earlier this month issued an interim injunction restraining the enforcement of this rule pending the conclusion of a petition filed by K.C. Vignarajah, a shareholder of the Commercial Bank. The latter challenged the regulation on the grounds that under the Companies Act, shareholders elect directors and there is provision for people 70 years and over to serve on boards.
However the CB rule was endorsed by the Supreme Court in a judgment issued on September 1, 2008 – after the rule was contested by others. The court then ordered that the rule or direction to banks be amended to provide for those who had served nine years and over by December 2008 to continue for three more years till December 2011, when they had to quit. The same extension was provided by court to those who reached 70 years or by December 2008 and were permitted to continue as directors till December 2011.
A senior CB official said that with two court rulings before them, legal opinion was consulted on the issue. “We have been advised to stick by the Supreme Court ruling because it’s a higher court directive. Thus under this ruling, all directors affected by this direction would have to step down by December 31, 2011,” he told the Business Times.
Several directors including Commercial Bank Chairman Mahendra Amarasuriya, Sampath Bank Chairman Arthur Senanayake and Nations Trust Bank Ajit Gunewardene are due to resign under this rule. While Mr Senanayake and Mr Gunawardene have declared their intention to quit, with nominees being named in their place, Mr Amarasuriya is expected to follow the Appeal Court verdict, banking sources said.