US Commercial Service delegation explores opportunities in Sri Lanka

The US Commercial Service based in Chennai in partnership with AmCham Sri Lanka led a trade delegation comprising of US companies based in India, recently. A business forum to discuss the investment opportunities and current business in climate was held at the Galle Face Hotel, Colombo recently.

In his welcome address Chargé d’ Affairs ad interim Andrew Mann emphasised the keen interests expressed by the current Sri Lankan Government to boost bi-lateral relations with the United States and the creation of an equal level field for Foreign Direct Investment (FDI) in Sri Lanka.

It was also mentioned that the US government recognises Sri Lanka as a critical partner in trade and has engaged in assisting and creating investment opportunities whilst making the country more attractive for business by creating transparent businesses and basing businesses on best practices and eliminating corruption.

It was expressed by Mann that good governance is essential to create business opportunities in Sri Lanka and such has been understood by the current Government to generate revenue for the company and for the job growth in the country.

Several large companies have already made a mark in Sri Lanka and such corporate giants are looking to invest in small medium enterprises that are engaged in innovation that will create more jobs and there are many businesses in Sri Lanka looking for joint ventures and there is high potential for partnerships. Mann also mentioned that American companies are not the only ones that are keeping an eye on Sri Lanka in order to create commercial ties.

Introductory remarks were made by AmCham Sri Lanka President Asanka Ratnayake at the event, where he mentioned that the correct policies are in place to attract investors to the country, creating a conducive environment for foreign investment.

It was also mentioned that there exists enormous opportunity for trade between the United States and Sri Lanka and Ratnayake emphasised on the opportunities available for the delegates present at the event and during their stay in Sri Lanka and to understand in detail the manner in which they can set up their businesses in Sri Lanka.

An introduction to the delegation from India was made by the Principal Commercial Officer (PCO) John Fleming, who with the assistance of his team had taken the key initiative to bring together individuals from diverse business corporation in India and to see what opportunities exist for this delegation, in Sri Lanka.

The delegation consisted of Arizona Tools Company, Authentix, The ELS Educational Services, HTC Global Services, Saggezza India, Underwriters Lab India, Asiana Hotel, Cognizant Technology Solutions as well as the $ 8 billion Fortune 500 company, OshKosh India.

AmCham Sri Lanka Vice President Felicio Ferraz also addressed the delegation on his experience of doing business in Sri Lanka as CEO of Ceylon Tobacco Company.  Ferraz stated that the people in Sri Lanka are very well educated and has produced a high number of talented individuals in Sri Lanka who are willing to grow and is keen to work for reputed multinational companies who have set up in Sri Lanka.

Introductions were made by Sri Lanka Association of Software and Service Companies (SLASSCOM) Director Hariharan Padmanaban, in relation to the IT and Business Process Outsourcing (BPO) sector in Sri Lanka.

Sri Lanka ranked as one of the top 20 destinations for BPO industry
It was mentioned that Sri Lanka is ranked as one of the top 20 destinations for the BPO industry and the standards are growing even more with local parties looking for international partnerships to reach further heights in relation to the industry.

Padmanaban further explained that Sri Lanka is where you can find a tier-one location, for a tier-two price, in relation to IT, and the Sri Lankan Government along with Information and Communication Technology Agency (ICTA) will be of assistance to set up businesses in relation to IT in Sri Lanka.

Board of Investment of Sri Lanka (BOI) Executive Director of Investment Renuka Weerakoon whilst addressing the gathering mentioned that currently there are a lot of investment opportunities in Sri Lanka and so much so that companies that are ranked by Fortune as the top 100 companies are looking to set up their businesses in Sri Lanka.

It was mentioned that BOI is a one stop shop for those interested in investing in Sri Lanka and BOI will assist the investors by providing the necessary information to set up their businesses and also liaise with relevant government authorities to ensure smooth establishment of the business, and the operations thereafter.

Remarks regarding the current business climate in Sri Lanka were made by Rajendra Theagarajah who is the Director/Treasurer – AmCham Sri Lanka and also a Director and the Chief Executive Officer of National Development Bank PLC. Theagarajah whilst having vast experience in the banking sector explained to the delegates the drastic changes that took place in the country after the end of the civil war.

Presentation on ‘Doing Business in Sri Lanka’ was conducted by KPMG Manager of Corporate Finance Dushani Corea and KPMG Principle Shiluka Gunawardane. It was mentioned by Corea that inflation remains in single digits and have been the lowest rates within the past five years, but credit growth is not much as expected in post war but this year the credit growth rate has picked up.

Mismatch in skills set
It was explained that there is a mismatch in skills set, as graduates are not meeting the needs of the private sector and therefore the Government is at a critical stage of having to enhance the standards in the tertiary sector.

In 2014, it showed an increase in FDI in hospitality, harbour projects, Colombo city project but Sri Lanka is still lagging behind from the development that was projected, post war. The reasons for the delays in reaching the targets have been due to the challenges that exist due to budget deficits being in place especially due to election spending.
Key considerations to attract FDI are: political stability, economic growth and simplification of procedural surroundings.

It was also mentioned that Sri Lanka has improved its status in the World Bank’s Doing Business Rankings where Sri Lanka has gained momentum from being in the 105th place in 2014 to being in the 99th place in 2015.
Corea explained that the legal procedure of setting up business has been made quick and easy and the BOI has been made a one stop shop that will assist the investors to establish their businesses when channelling their investment through the BOI.

It was also mentioned that foreigners cannot own land in Sri Lanka but could lease land up to 99 years by paying a land lease tax and it was mentioned that Sri Lanka does not charge capital gain tax.

Compelling reasons to invest in Sri Lanka
Gunawardane explained to the delegation that the compelling reasons to invest in Sri Lanka are the expected accelerated development, strategic location and access to markets, investor friendly environment, open economy, skilled labour force, small but attractive market, international trade agreements and untapped natural resources.

During the event, the questions and answers session was moderated by Peter Zirnite, where it was expressed that proper procedures are in place to protect Intellectual Property (IP) in Sri Lanka and AmCham together with the US embassy are assisting to create awareness and put in place the right measures to protect IP and it was also mentioned the Sri Lankan government’s willingness to protect IP in the country.

Questions were raised by the delegates as to what steps have been taken by the government to address the unemployment rate in the country, and it was mentioned by Padmanaban that from BPO perspective the Government apart from the university education provided the Government along with the private sector has also been investing in tertiary education and as a result Sri Lanka has a high number of professionals who are well able to be engaged in the BPO industry.

With the conclusion of the Commercial Service Trade Mission, the delegates at the event were able to obtain an insight into the investment opportunities available in Sri Lanka and to make the right connections during their stay in Sri Lanka.

Published in DailyFT, Sri Lanka on July 10, 2015 (http://www.ft.lk/article/443895/US-Commercial-Service-delegation-explores-opportunities-in-SL-via-AmCham). 

Words by Radhi de Silva

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Counterfeit and piracy: Far-reaching consequences on our lives and the economy

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The American Chamber of Commerce (AmCham) Sri Lanka recently hosted a panel discussion titled ‘Counterfeits and Piracy – the far reaching consequences on our lives and the economy!’ The objective of the program was to bring together key public sector officials and private sector representatives of industries affected by the rampant issue of Intellectual Property Rights (IPR) violations, in order to formulate a joint effort to address the challenges facing both sectors.

AmCham will be carrying out a series of similar programs over the coming months in order to create awareness regarding IPR and the need to fight counterfeit and piracy, since there is a strong correlation between IPR and Foreign Direct Investment and it has been further established that IPR protection is a strong determinant of inward investment.

The theft of Intellectual Property (IP) from industries is a serious matter, as it stifles innovation, slows economic growth and weakens the competitiveness of businesses. IP theft has an adverse impact on innovation, commercialisation of new products and overall economic success. However, it has been noted that Small Medium Enterprises are particularly vulnerable because they are at a distinct disadvantage in securing IPR in foreign markets and confronting its theft.

During the panel discussion, the public sector was represented by National Intellectual Property Office (NIPO) Director General Gitanjali Ranawake and Coordinating Secretariat for Science, Technology and Innovation (COSTI) Project Scientist Kumudini Gunasekera. Representation for the private sector was made by Glaxo Welcome Head of Sales for Sri Lanka and the Maldives Dr. Kusal Senanayake and Ceylon Tobacco Company Head of Legal Ranjan Seneviratne.
Sudath Perera being an Attorney-at-Law and the Managing Partner of Sudath Perera Associates, formed part of the panellists where Perera gave a valuable insight with regard to the enforcement of IP laws and legal reforms in relation to IPR, in Sri Lanka. The panel discussion was moderated by Amice van der Burg-Dissanayake, a Strategist and Commercial Lawyer, in the Netherlands and also at John Wilson Partners, Attorneys-at-Law and Notaries Public.

The private sector representatives brought to light the impact caused by IPR violations and Dr. Senanayake addressed the necessity of the public to understand the concept of counterfeit and the damage caused by such counterfeit products, for e.g. plenty of counterfeit pharmaceutical drugs are available in the market for a very cheap price but most often the main purpose of a pharmaceutical drug is lost and the desired treatment from such a drug is not achieved and such drugs can be harmful and as a result has caused many deaths.

It was also mentioned that most pharmaceutical drugs that are counterfeit are not properly stored and are channelled through illegal means for trading and therefore products such as vaccines lose its effectiveness and may even cause harmful side effects.
Seneviratne informed that tobacco products need to be properly manufactured subject to quality control. Most tobacco products that are smuggled are not up to standard and are mostly expired but such products are packed using packaging of branded tobacco products to mislead the consumer.
Monetary and non monetary impact
Counterfeit products being sold in the market has a monetary and non monetary impact since allowing counterfeiting to take place damages the goodwill of a brand; as a result most brand owners allocate a large amount from their budget to protect their IPR, which could have been used to invest in research to develop better products as done by most pharmaceutical companies. In terms of monetary losses, the Government is hit the hardest as the Government losses around Rs. 200 million every year as revenue.
In order to protect the IPR in Sri Lanka, Perera informed that the key legal regulatory procedures that IPR owners may rely on are the criminal or civil procedures, and also section 30 and 31 of the Consumer Affairs Authority (CAA) Act No.09 of 2003; where parties are prevented from misleading, deceiving and or falsely representing counterfeit products as originals to consumers and traders.
The criminal procedure is known to be the most cost effective and easiest method to rely on as the IPR owner to make a police complaint; however the IPR needs to be duly registered with NIPO in order to proceed. It was also mentioned that even though it will be time consuming most IPR owners rely on the jurisdiction of the Commercial High Court to prevent further damage being caused by counterfeit items through interim relief such as injunctions.
It was also mentioned that the Commercial Crimes Investigations Unit 2 is a special unit at the Criminal Investigation Department that handles matters concerning the breach of IPR and handles many IPR matters concerning internationally renowned brands.
Perera further added that with the assistance of AmCham, a customs recordation procedure is to be implemented shortly in Sri Lanka where once a trademark is registered at NIPO such also gets registered with the Customs, and the Customs can monitor any parallel imports taking place and take necessary action to prevent IPR violations due to such parallel imports.
The way forward for IPR in Sri Lanka
The question was raised as to what is the way forward for IPR in Sri Lanka and Ranawake explained that the necessary laws are in place but much more needs to be done and most important is to create awareness regarding the importance of protecting IPR and also the registering process of IPR to safeguard IP in Sri Lanka. It was also mentioned that government officials need to be more conversant with regard to IPR especially the government law enforcement agencies, the Customs and the CAA, and the NIPO is currently engaged in educating these officials around the country.
Gunasekera informed that amongst its many objectives, COSTI engages in linking private and public partnerships in order to commercialise and protect IPR in Sri Lanka, and create awareness regarding the importance of patenting inventions which most inventors are not aware of and Sri Lanka is quite behind in terms of innovation as Sri Lanka was ranked at 105th place in the Global Innovation Index for 2014. It was also mentioned by Gunasekera that COSTI along with NIPO and WIPO are in the process of preparing a National Innovation Policy in Sri Lanka to encourage more innovators.
Participants at the panel discussion addressed the importance of a strong IP system in a country and which will be one of the key pre-requisites to bring in FDI and therefore ensuring IPR is well protected is a vital component for a growing economy such as Sri Lanka.

 

Published in DailyFT, Sri Lanka on June 11, 2015 (http://www.ft.lk/article/428265/Demystifying-the-complexity-of-related-party-transactions). Image courtesy of The American Chamber of Commerce.

Words by Radhi de Silva

Demystifying the Complexity of Related Party Transactions

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A seminar was organised by BDO Partners, Chartered Accountants, based on the title ‘Demystifying the Complexity of Related Party Transactions,’ and a panel discussion was held to allow the participants to raise their questions to the panellists with regard to RPT.

The panellist consisted of eminent persons who are well conversant in relation to RPT such as Dr. Harsha Cabral, President’s Counsel and Chairman of Tokyo Cement PLC; Gamini Wijesinghe, Director General of Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) and former Senior Commissioner of Department of Inland Revenue; Renuka Wijayawardhana, Chief Operating Officer of the Colombo Stock Exchange (CSE); Tishan Subasinghe, Partner Technical and Human Capital – BDO Partners; and Priyana Gunesekera, Head of Listings and Corporate Affairs of the CSE. The panel discussion was moderated by Daily FT Editor Nisthar Cassim.

A practical viewpoint

Dr. Cabral expressed his opinion with regard to the Companies Act and the Code of Best Practices on Related Party Transactions (RPT) from a practical viewpoint. He pointed out that mechanisms like the interests register have been in place for a very long time to deal with RPT. He emphasised that the directors’ duties in relation to RPT must be read together with the general obligations of directors given in section 184, 186, 187, 188 and 189 of the Companies Act, where they must act in the best interests of the company. It was also mentioned that it is not only a company law requirement but an ethical obligation that the directors do not place themselves in situations where there can be a conflict of interests.

Dr. Cabral was of the opinion that the Companies Act is applicable to all companies in Sri Lanka, and as such the law provides a broad outline on the duties of directors for each of these companies. The fact that they are entitled to vote on transactions in which they have any interest cannot be taken in isolation as this vote has to be exercised in line with his broader duties and responsibilities and in the best interests of the company.

When appointed as a director of a listed company, it was mentioned by Dr. Cabral that the regulators impose a higher standard of care on the directors in order to protect the investor interests. The introduction of the Code of Best Practices on RPT and even the Code of Best Practices on Corporate Governance are examples of where the Securities and Exchange Commission (SEC) has placed more stringent requirements and put in place a regulatory framework on listed companies to ensure greater transparency and accountability of its affairs.

Difficulties in capturing RPT 

As a member the Board of Directors of several listed companies Dr. Cabral also discussed the role of the RPT Review Committee which has to be set us under the Code of Best Practices on RPT. This committee is charged with the responsibility to review all RPT of the company.

He explained the difficulties in capturing RPT as one director may also be a director of another company with which the company has business dealings but such transactions may escape the notice of the director inadvertently. Dr. Cabral suggested that companies will have to invest on software which is capable of connecting the directors’ interests in transactions by entering the NIC number of the director to such computer system. There is however, a doubt as to whether such system can also be programmed to capture RPT with parties outside the country as well.

There was a request from the audience to the representatives from the CSE to consider the possibility of making such a software freely available to the public in order to ensure ease of compliance with the new regulatory requirements.

Disclosure-based listing regime

Renuke Wijayawardhane informed that a disclosure-based listing regime has been adopted by the CSE in order to ensure that adequate information is disclosed by the listed companies, starting from the point of listing, so that the investors can make an informed decision about the company’s shares.

The CSE had introduced rules on related party transactions since 2010 which is in effect as of now. There are certain disclosures required by way of immediate disclosures as well as in the annual reports. However it was subsequently felt that the present rules were not broad enough and certain rules did not provide clarity too. For e.g., at times it was difficult for companies to define what a related party transaction was. A frequent question was having common directors would constitute a RPT.

Sometimes related party relationships and transactions may be difficult to identify and report by the company. Sometimes it may have been noted that the company’s related parties may operate via an extensive and complex network of relationships due to the convoluted shareholding structures of the company which makes it difficult to unravel the RPT.
Wijayawardhane accepted that there was some confusion regarding what is a ‘recurrent’ RPT and several companies wanted to know if they needed to disclose each recurrent transaction separately or whether to disclose the cumulative amounts. The CSE subsequently issued a clarification that companies can in fact group ‘recurrent’ transactions in the ordinary course of business and disclose an estimated amount. However, the ‘non-recurrent’ transactions will have to be disclosed as and when they take place.

At times the CSE has noted that the disclosures did not specify the terms of the transaction; whether it in the ordinary course of business, concessionary rates would apply etc. Also, the rationale for the transaction was also not given, although required in the rules.

However, with the introduction of the new rules, which would be mandatory from next year, most of these confusions would arise. The new rules would ensure that there a transparent process established by the listed companies to review the related party transactions with adequate checks and balances together with certain enhanced disclosure.

Wijayawardhane expressed that certain parties may wonder as to why the CSE requires so much information but it was explained that once a company gets listed the company acquires a responsible role as the public will be investing in that company and if discrepancies in information are not avoided the public will be reluctant to invest in the company or may start discounting the true value of the company and the company’s cost of capital will increase.

It was inquired as to what steps are taken by the CSE in the event of noticing any lacuna in the regulations and Wijayawardhane informed that CSE will duly inform the SEC and the SEC will take remedial action and also in the event of any irregular activities by parties, the SEC will be informed with regard to same by the CSE and the SEC will take necessary legal action against such parties.

Transfer pricing regulation

Wijesinghe, speaking through experience whilst being the Director General of SLAASMB and former Senior Commissioner of Department of Inland Revenue, addressing the attendees informed that there is no applicable threshold for transfer pricing regulation under Section 104 of the Inland Revenue Act.  The threshold of Rs. 50 million and 100 million for domestic transaction and international transaction respectively are applicable only for the purpose of keep and maintain of relevant information which is required under regulation 5 of Transfer Pricing Gazette No. 1823/5 dated 12 August 2013.
It was also informed that RPT are liable to test under arm’s length price. But if both related parties are local, then if either party is not enjoying tax holiday, concession rate or loss incurred for the purpose of tax the section 104 is not applicable. This condition is not applicable if one party is in different jurisdiction.

The rate of interest to be charged for the related party was also mentioned as a controversial area in RPT. The general idea of the arm’s length pricing is the price which is charged by independent party in uncontrolled condition, in other words, the open market price for the same or similar product or services under similar condition. It was also mentioned that as far as interests are concerned, identification of similar conditions are difficult. Therefore cost of capital plus relevant profit margin may be the reasonable rate to be charged and the relevant interest rate to be adjusted considering the risk factors of the borrower.

Wijesinghe informed that transfer pricing is applicable for any transaction or group of transactions of class of transactions. He further explained that transfer pricing regime now have been established in Sri Lanka, therefore such to be complied with in relation to RPT.

It was further explained that Section 104 defines what arm’s length price means: “a price which is applied in uncontrolled conditions in a transaction between persons, other than associated undertakings”.  This section is implied that the price on transactions which is take place between related parties to be treated always as non-arm’s length. Therefore if there are any transactions between related parties they have to ready to prove that there prices are arm’s length.

Accounting and auditing standards

SLAASMB is the only authorised regulator for issuing and monitoring of accounting and auditing standards in Sri Lanka, and the SLAASMB Board has given authority to The Institute of Chartered Accountants of Sri Lanka to issue relevant accounting and auditing standards. While regulating the process of issuing standards, the board annually review around 1,500 annual reports and 100 cases of audit to satisfy the application of the relevant standards.

Sri Lanka Accounting Standards (LKAS) 24 is the standard expressing the disclosure of RPT. The Board has noted that 163 entities including 54 SMEs have failed to provide information relating to the nature of the related party relationships as well as information about transactions with related parties. Wijesinghe further stated that any persons who fails to comply with provisions shall be liable to a fine.

Priyana Gunesekera informed that currently there are two sets of rules applicable for RPT namely the rules that came into effect in September 2010 and the rules that came into effect from 1 January 2014 which are currently on a voluntary basis and would become mandatory with effect from 1 January 2016.

It was also informed that based on the sample of annual reports reviewed by CSE none of those listed companies have adopted the new rules and continue to make disclosures based on the rules introduced in September 2010 which are currently mandatory.

During the review process by CSE, it has been noted that when complying with the 2010 RPT Rules, the listed companies have issues in tracking down related parties and having them in a system in a retrievable manner, and even though market announcements are made by certain companies the announcements do not contain the required disclosures, e.g. the rationale, the terms whether in the ordinary course of business or on special terms at concessionary rates, etc.

It was mentioned that the requirement under the applicable rules is to make an initial announcement on an estimated basis of recurrent RPT initially and thereafter make an announcement when the actual aggregate exceeds 5% of the estimate.
The new rules that are currently adoptable on a voluntary basis do not require immediate disclosure of recurrent transactions and whether non-recurrent RPT is to be disclosed per transaction or on a cumulative basis. The requirement is for each transaction to be disclosed if it exceeds the threshold and thereafter all material transactions, prior to the concerned parties being informed by a third party.

CSE also have identified certain RPT from the annual reports which have not been duly disclosed as per rules and non-disclosure of RPT separately for each related party.

Challenges under the new rules

Gunesekera explained that some of the challenges to be faced under the new rules for example are prior to the board approving the RPT to obtain shareholder approval when required in a well-planned manner when entering into RPT and, the RPT Review Committee having to review the transaction prior to or before completion of a transaction since transactions entered into for which approval will be obtained before completion of a transaction may pose issues if not accepted and having to track down related parties of the entity prior to six months of a transaction, which can be a very challenging task.

It was also mentioned that when a company does not inform the CSE regarding a RPT that requires immediate disclosure, the CSE could be made aware via a complaint or a media release. The other method would be at the time of reviewing the annual report of the company, where the CSE would identify certain RPT based on annual report information, which however may very well happen within five to eight months after the year end.

In such instances the CSE would include the observation in the observations letter and compel the company to comply with the rules and require the company to make an immediate disclosure. In a worst case scenario the CSE may take certain action in line with those provided in the listing rules.

The panel was raised with the question as to what would the role of the auditor be with regard to the rules and how effective would they be in complying with the rules.

Subasinghe informed that an auditor must ensure that the RPT is duly completed whilst complying with the rules. However it is the duty of the management of the company to ensure and follow the proper process of identifying the RPT and to identify such.

It was further informed that the management may use specific software to capture such or an independent audit committee to ensure that the rules are fulfilled but the management to ensure that the right people are selected to the committee.

Furthermore, the Sri Lanka Auditing Standards (SLAuS) 250 ‘Consideration of Laws and Regulations in an Audit of Financial Statements’. The auditor has to ensure compliance with any laws or regulations which would have a material impact on financial statements. This includes any laws and regulations on Related Party Transactions. And also as per the SLAuS 550 ‘Related Parties,’ the auditor has to ensure proper audit procedures been carried out in covering Related Party Transaction.

Furthermore, the auditor has to ensure compliance with LKAS 24, the according standard on ‘Related Party Disclosures,’ which has mainly focused on making adequate disclosures on Related Party Transactions.

When asked what steps have been taken by the Department of Inland Revenue regarding the new rules, the invitees from the Department of Inland Revenue informed that the department is ready to follow the new rules and the department intends to organise workshops to train the department officials in order to be prepared to handle transfer pricing issues.

Role of directors

It was suggested to the panel that the directors are not aware of the rules with regard to RPT, and Dr. Cabral informed that as per the Companies Act there are no specific requirements to be a director but it is the duty of the shareholders of the company to appoint those who are suitable to be in the board especially independent director as they are required to bring in a wealth of knowledge, and proper training to be provided to the directors to carry out their duties.

Dr. Cabral further added that the Golden Key Credit Company would not have collapsed if proper disclosures too place and directors were provided with training and followed their duties accordingly.

When inquired from the Department of Inland Revenue whether irregular RPT are detected, Wijesinghe informed that they have detected and losses of revenue to the Government has been reduced because of the detections. The department has also taken steps to gazette information regarding transfer pricing and the requirement of disclosure has been emphasised.

Published in DailyFT, Sri Lanka on June 03, 2015 (http://www.ft.lk/article/428265/Demystifying-the-complexity-of-related-party-transactions). Words by Radhi de Silva.

A hero on his native soil, so was thought: The Sepala Ekanayake Story

Sepala Ekanayake Headlines were made locally and internationally when Sepala Ekanayake a Sri Lankan national hijacked the Alitalia flight AZ 1790 Boeing 747 with 340 passengers on June 29, 1982. This case was sensationalised mainly because this was the first time a Sri Lankan national was engaged in a hijacking of a passenger airline and at that time it was not an offense under the Sri Lankan legal system to commit such an offence.

Facts

Ekanayake having being born in Matara, married an Italian national in 1977 with whom he had a son whilst residing in Modena, Italy. However, Ekanayake lost his Italian visa some time after his son’s birth and was denied a renewal of his visa by the Italian authorities and the authorities suggested that Ekanayake return to Sri Lanka and apply for visa with the Italian Embassy in Colombo which would probably take him six years to receive the visa.

Being infuriated with the situation he concocted a plan to hijack an Italian aircraft and put forth his demands straight to the Italian government.

On June 30, 1982 Ekanayake travelled to the New Delhi airport with some of his friends and awaited the arrival of the Alitalia flight AZ 1790 which was travelling from Rome to Tokyo. Ekanayake having boarded the flight waited until the plane reached a level of 35,000 feet and then issued his demands to the pilot in a letter, which were as follows:

  1. to have Ekanayake’s son brought to him;
  2. 2. to be given US$ 300,000/- for him to distribute among his collaborators;
  3. 3. for the plane to land at the Bangkok Airport, leave the doors closed, issue the demands to the Italian authorities and communicate only through radio; and
  4. 4.That all the passengers be allowed to disembark at the without security checks. And if his orders were not followed Ekanayake would blow up the plane with the “most sophisticated bombs manufactured in Italy”.

The chief pilot George Amarosa immediately dropped to 25,000 feet and headed to Bangkok. In a few hours Ekanayake’s wife and son along with the ransom were on the way to Bangkok. In 30 hours the transaction was completed and Ekanayake released the passengers of the plane. But Ekanayake was confronted with the new problem of not knowing where to go with his wife and son and his newly gained wealth in order to start a new life.

Matters of Jurisdiction

The plane belonged to Alitalia of the Italian government and the offence took place in Thailand. Therefore, the prime responsibility to deal with the hijack situation rested with the Thai authorities and should have been dealt by the Thai authorities thereafter. But the Sri Lanka Ambassador and the Sri Lanka foreign office played an active role in the negotiation process and the freeing of the hostages, merely because Sepala Ekanayake was a Sri Lankan.

Due to the miscommunications that took place between the authorities and based on the assurance provided by the Sri Lankan ambassador in Bangkok Manel Abeysekera, Ekanayake was given the opportunity to travel back to Sri Lanka without any fear, which Ekanayake reluctantly did. However, the Italian government demanded that Ekanayake be handed over to them.

A Hero’s Arrival in Sri Lanka

On the assurance given by the Sri Lankan ambassador, Sepala Ekanayake arrived in Sri Lanka with his wife and child to a virtual hero’s welcome in the early hours of 2nd July, 1982. Ekanayake and his family having been cleared by the Immigration desk, while the Customs having cleared their baggage and money including the US$ 300,000/- “ransom money”, they were driven straight into the Hotel Ceylon Inter- Continental where they had been checked in to Room No. 730.

Diplomatic Controversy

The Sri Lankan Government was in a dilemma since the public opinion in Sri Lanka opposed the handing over of Ekanayake to the Italian authorities since some in Sri Lanka even deemed Ekanayake a hero; whilst on the other hand the Sri Lanka government was being condemned for harboring an international criminal and for the violation of the International Air Traffic Agreement (IATA) which Sri Lanka was a signatory however due to the sovereignty of the Sri Lankan constitution, a local statute was required to be passed by the legislature to make the provisions in the IATA enforceable in Sri Lanka.

Daya Gamage having being a political specialist at the American Embassy during this time states that it is very likely that the US authorities would have adopted a hard line and threatened to declare Sri Lanka a country in the category of Libya if Ekanayake was not prosecuted for the offences committed. At that time Libya was already declared an ‘international pariah’ with a tag of ‘exporter of state terrorism’ due to the Libyan government’s leniency towards a number of hijackings by Libyan nationals.

Issues at Law

Sepala Ekanayake was allowed to come into Sri Lanka by the Sri Lankan authorities as a free man after having hijacked a passenger plane, whilst holding the crew and passengers hostage and having extorted a ransom of US$ 300,000/-.

With pressures building from many directions, the officials needed a way to arrest Ekanayake but except for newspaper reports the police had no grounds to make an arrest since, no aggrieved party had made a complaint to the police regarding the hijack; and that Ekanayake had not committed a cognizable offence in Sri Lanka and also most importantly no anti hijacking laws were formulated in Sri Lanka at that time.

Crisis Averted

Therefore as an initial step to take action against Ekanayake, “some” complaint was required from an aggrieved party that will prima facie show that an offence has been committed, in order for the police to bear responsibility and order his arrest.

On 3rd July,1982 Franco Micieli de Biase the Italian Ambassador handed over a complaint requesting the Sri Lanka Police Authorities to take necessary action against  Sepala Ekanayake for the hijacking of an Italian passenger airline and for the return of US$300,000 to the Italian Government.

After the police accepted the aforesaid letter from the Ambassador, Chief Inspector George Nicholas recorded his statement and thereby the Sri Lanka Government authorities were able to take action under the law in respect of this complaint.

It must be noted that Ekanayake had to be arrested in a lawful manner and the police had to do so with all possible precautions. Had the police been pressurized to rush to arrest without the complaint of the Italian Ambassador the defense could have argued that the arrest was illegal.

Eventually the arrest of Ekanayake took place on the 3rd July at 5.00 p.m. in Galle barely 36 hours after he stepped on Sri Lanka soil. The wheels of the law were set in motion whilst defusing the international tension that was building up.

With the handing over of Ekanayake to the Criminal Investigations Department (CID) at 8.45 p.m. on 3rd July, 1982 the task of the Colombo Police ended. Later on the CID carried out a successful investigation and Ekanayake was indicted and convicted under the anti- hijacking laws which were passed under Offences Against Aircraft Act No. 24 of 1982 (“the Act”), which was only assented by the speaker of the Parliament of Sri Lanka on July 26, 1982.

The Act gave effect to certain conventions[1] which Sri Lanka had become a party, and to also to deal with matters connected therewith which was enacted with retroactive effect.

Subject to the newly passed statute, Ekanayake was charged[2] on June 29, 1982 having unlawfully forcing or threatening the pilot of the said aircraft that if his demands were not met he would explode the said aircraft with all on board with the use of explosives; and thereby Ekanayake having taken control of the aircraft which was in flight between New Delhi and Bangkok.

Furthermore, Ekanayake was also charged under section 394 of the Penal Code for having dishonestly kept US$299,700 knowing same to be stolen property between July 1 and July 3, 1982 in Colombo which was within the same jurisdiction as the offense set out as the aforesaid charge.

Judicial Power Enforced

The case against Ekanayake commenced on May 30, 1983 in the Colombo High Court with case No.1203/83, before the Honorable High Court Judge J.J.F.A. Dias, Upawansa Yapa (then deputy Solicitor General) and V.J.W. Wijayatilaka (State Counsel) appeared for the state, whilst Attorneys-at-Law Ranbanda Seneviratna with Dammika Yapa, Mahinda Rajapaksa and Mahinda Jayawardana, appeared on behalf of Ekanayake and Attorneys-at-Law C. Titawela, S. L. Stanislans and Haradsa watched the interest of Alitalia.

At the end of the trial, the High Court found Ekanayake guilty on the charges of hijacking and retention of stolen property and sentenced Ekanayake to simple imprisonment of life on the first charge and three years rigorous imprisonment on the second charge.

Ekanayake appealed against his conviction to the Court of Appeal with case No.132/84, who was represented by Dr. Colvin R. De Silva. The appeal court bench consisted of Justice Abeywardana, (President) Justice Jayalath and Justice Ramanathan, who interfered with the sentence imposed by the trial judge and held that sentence of simple imprisonment could not run concurrently with a sentence of rigorous imprisonment and altered the sentence on the first court to one of five years rigorous imprisonment to run concurrently with the sentence on the second count, which was reduced to two years.

Ekanayake appealed to the Supreme Court who was again represented by Dr. Colvin R. De Silva and the appeal was heard before Justice R.S. Wanasundara, Justice L.H. de Alwis and Justice O.S.M. Seneviratna.

During the appeal made before the Supreme Court with case No.68/86, the defense challenged the jurisdiction of the Sri Lankan High Court to try the case under section 17 of the Act for crimes committed by a Sri Lankan on an Italian plane in Bangkok, also a plea of misjoinder and whether a charge of retention can be leveled against the extortionist himself were also raised.

The Supreme Court, after hearing the appeal, delivered judgment on January 18, 1988[3], dismissing the appeal, affirming the conviction and sentences on Ekanayake.

Justice de Alwis who delivered the judgment of the Supreme Court with other two judges agreed with the relevant section dealing with the offence of hijacking according to the judgment comparing section 17 of the Act along with section 19 of the Act based on the following:

1) section 19(3)(d) of the Act vests jurisdiction in respect of the acts of the Defendant referred to in section 17(1)(a) to (e) in relation to a foreign aircraft. The words ‘in relation to’ include acts committed on board the aircraft also. The words in relation to, as used in section 19(2)(d) mean ”in respect of” although in other parts s o the words used are “on board or in relation to”. This interpretation must be given in order to give the words a rational sense which is consonant with the Hague Convention[4].

2) section 9(1) (f) of the Judicature Act No. 2 of 1978 confers jurisdiction on the High Court to try Sri Lankans for offences committed outside Sri Lanka or on board or in relation, to any ship or aircraft of whatever category. Moreover section 39 of the Judicature Act bars objection to jurisdiction by an accused person who has already pleaded and taken part in the trial.

3) Where theft (or extortion) has been committed in a foreign country it is possible to charge the thief or (the extortionist) himself in the Sri Lankan courts with dishonest retention of the property so stolen or extorted.

4) The acts for which the accused was charged under the Act and retention of stolen property were connected so as to form the same transaction based on the main test of “continuity of action”.

Conclusion

Ekanayake’s case is a case that certainly goes down in Sri Lankan history because of the potential international mayhem caused, all because of one man’s wish to be reconciled with his family.

This case had the possibility of threatening the diplomatic relations between Sri Lanka and the international community and most importantly creating a legal crisis, however all were fortunately averted due to the quick assertive acts of the executive, the legislature giving validity to international conventions through domestic statutes also the Judiciary taking up the responsibility of giving way to the will of legislature by enforcing statutes that have retrospective effect. However, it must be noted that the proceedings of the case have most certainly created debate amongst jurists regarding the manner in which the 1982 act was enacted and how a man who thought was innocent on his native soil was made a criminal.

[1] Convention on offences and certain other acts committed on board aircrafts, signed at Tokyo on September 14, 1963, Convention for the suppression of unlawful seizure of aircraft, signed at the Hague on December 16, 1970, and Convention for the suppression of unlawful acts against the safety of civil aviation, signed at Montreal on September 23, 1971

[2] under 1982 Act, s 17(1) read with s 19(1) and 19 (3)(d)

[3] Ekanayake v. Attorney-General(1988 SLR1 46)

[4] Art 1, 2 and 4

Sources of reference:

Case Report, Ekanayake v. Attorney-General [1988 SLR1 46]

Newspaper publications on The Island, The Nation, etc.

Publications by the Retd. Senior Deputy Inspector General of Police  regarding the event.

 

**This article was published in the Fifth Volume of the Junior Bar Law Journal in 2014 

Doing Business with China: Free Trade Agreement and beyond

A forum titled ‘Doing Business with China: Free Trade Agreement (FTA) and Beyond’ was held recently at On Golden Pond, Taj Samudra Hotel, Colombo. It was organised by Verité Research Limited in partnership with the Exporters’ Association of Sri Lanka.

Coinciding with the title of the forum, the discussions by the guest speakers were based on creating an understanding about the opportunities that are available for the private corporate sector in Sri Lanka when doing business with China and the opportunities that may further arise in the event the proposed FTA between Sri Lanka and China is executed.

A number of participants were present at the forum mainly consisting of those engaged in export trade and those who are interested or already doing business with China. The opening remarks were provided by Mangala P.B. Yapa, Secretary General and the Chief Executive Officer of the Ceylon Chamber of Commerce who emphasised on the fact that Sri Lanka is a gateway or a corridor which enables nations to carry out international trade and considering such it is no surprise that China would want to create trade relations with Sri Lanka and it is up to us to utilise this opportunity.

An expert presentation was provided by Subhashini Abeysinghe who is the head of economic research at Verité Research Limited. The presentation consisted of a detailed analytical discussion with the currently available data in relation to the Chinese economy and its positioning in the international market.

Further, a comparison was done between the Chinese and Indian economies, and Abeysinghe drew the audience’s attention to the promising opportunities that prevail by doing business with China in export and in the import trade. Based on the statistical findings and with tea and apparel being the front-runners in the export trade in Sri Lanka, it was disclosed that the Chinese market has high potential which needs to be considered by the tea and apparel sector in Sri Lanka and with the FTA coming into place it will be highly beneficial for the trading between the two nations.

Guest speakers at this forum consisted of Niraj De Mel, Former Secretary General, Tea Exporters’ Association, who provided the potential benefits that prevail for the tea export industry when trading with China and how it is certainly promising compared to the current FTA with India and Pakistan.

Anushka Wijesinghe, Research Economist of Institute of Policy Studies and Deshal De Mel, Senior Economist/Strategic Business Development of Hayleys PLC spoke about their perspective on the export sector and what to expect when trading with China and the practical requirements that need to be addressed prior to creating trading links with China. Yohan Lawrence, the Chairman, Sri Lankan Apparel Exporters’ Association drew attention to the issues pertaining to trading with China by the apparel sector in Sri Lanka and hopes that the FTA will address the prevailing issues and open the export of apparel from Sri Lanka to China which is restricted at the moment. Later on a panel discussion was conducted which was chaired by Dr. Nishan De Mel, the Executive Director of Verité Research Limited with panelists consisting of Anushka Wijesinghe, Deshal De Mel, Yohan Lawrence, Niraj De Mel, Subhashini Abeysinghe and P.D. Fernando, the Former Director General of the Department of Commerce.

During the panel discussion matters were addressed especially with the difficulties faced by the traders in Sri Lanka when doing business in India and Pakistan and it was not surprising that Sri Lankan traders were sceptical about the FTA with China. However P.D. Fernando having the insight as a former government official informed the reasons for the lack of success with the FTAs signed with India and Pakistan and the main reason being the lack of understanding regarding FTAs by such nations and Sri Lanka at the time of signing the agreements since this was each nations first FTA but going forward and by having a better understanding Sri Lanka should be able to enter into an effectual FTA with China but it is up to the government policy makers, negotiators and the private sector to ensure that such FTA addresses our nations requirements. The gold sponsors of the forum were CIMB and NDB Bank, whilst the insurance partner was SLECIC. The media sponsors were, Daily FT, Daily Mirror, Sunday Times, Lankadeepa, Echelon and News 1st.

Published in DailyFT, Sri Lanka on December 18, 2014 (http://www.ft.lk/2014/12/18/doing-business-with-china-free-trade-agreement-and-beyond/). Words by Radhi de Silva. 

The Sri Lankan Law: Is it Yea or Nay for the Foreign Investor?

Laws prevail in a legal system for the betterment and in the best interest of those who are within the jurisdiction of such legal system, and it must be noted that certain laws prevail in order to provide the people of its country an undue advantage. Such undue advantages are visibly seen especially in relation to laws with regard to investment and such mostly exist based on the current investment policies of the country.

Sri Lanka is currently on the fast track to make the country a commercial hub in Asian and in order to do so the economic policies in Sri Lanka must be welcoming towards foreign investors, but must also be duly regulated and closely monitored.

This paper focuses mainly on the regulations that prevail and those that are currently being proposed, and further to understand the practicality of such regulations being enforced.

Who is a foreigner?

In order to understand the laws regulating foreign investment being made in Sri Lanka, it is important to clearly identify who is a foreigner. According to the prevailing legislature there is no clear definition to the word ‘foreigner’ but is impliedly referred to those defined as ‘a person resident outside Sri Lanka’ in section 2 of the Government Gazette No.15007 dated 1973.04.21.

However it must be noted that recently a bill was presented to Parliament titled ‘Land (Restrictions on Alienation)’ which is at the moment scheduled to be subject to parliamentary debate, and subject to the proposed law[1] a ‘foreigner’ has been clearly defined as a person who is not a citizen of Sri Lanka and a ‘foreign company’ is defined as a company or a body of persons incorporated under the laws of any country other than Sri Lanka.

Procedures for a foreign investor to invest in Sri Lanka

In principles of law, a legal entity is considered as either a person or a company[2], and in Sri Lanka the manner in which a person may invest in a business is either by registering a business name or a partnership[3], or by incorporating a company[4]. However subject to the enactment of the Companies Act No. 07 2007, a foreigner may only invest in Sri Lanka through the types of company set out in the Companies Act, but cannot register any business name or a partnership due to the repeal of Companies Act (Special Provision) No. 19 of 1974.

The manner in which the foreign investment can be brought into Sri Lanka, and the manner in which funds can be repatriated is regularized by the Department of Exchange Control of the Central Bank of Sri Lanka[5], which investors needs to be complied with prior to proceeding with the said investment.

Are the current legislative provisions welcoming towards the foreign investor?

With many legislative enactments prevailing at the moment to provide investment opportunities for the foreign investor, one of the main binding provisions are set out in the Sri Lankan Constitution itself. The Constitution encourages foreign investment[6] by passing a resolution with a two thirds majority vote of the members of Parliament to introduce bilateral investment agreements between the Sri Lankan Government and the government of any foreign state. This provision is significant as such bilateral investment agreements are provided with a constitutional guarantee that prevents legislative, executive, or administrative action being taken to contravene the provisions of such bilateral investment agreement except on grounds of national security.

The aforesaid constitutional guarantee however is only extended to treaties and agreements between the Sri Lankan Government and the government of a foreign state and does not provide any assistance to private, medium and small scale foreign investors.

However, there exist relevant laws in place to provide opportunity for such foreign investors to invest in companies that are registered in Sri Lanka[7] subject to the Exchange Control Act[8]. Thereby with such laws in place corporate bodies incorporated outside Sri Lanka and individuals resident outside Sri Lanka (inclusive of Sri Lankans resident outside Sri Lanka) are allowed to invest in a company registered in Sri Lanka up to 100% of the issued capital of such company, however subject to certain exclusions, restrictions and conditions.

Apart from the above the foreign investor can also reply on the Board of Investment of Sri Lanka (BOI), which is a semi governmental institution created[9] for the economic development of Sri Lanka through encouraging and promoting foreign investment (amongst other objectives).  If a private foreign investor wishes to set up a company in Sri Lanka it is ideal that such investor obtains a BOI approval to its project, provided the required investment is made to such project.  However a foreign investor may invest in a Sri Lankan company without a BOI approval if it is not violating the limitations set out under section 3 of the Extraordinary Gazette notification No. 1232/14.

Exclusions, limitations and conditions towards Foreign Investment

Exclusions[10]:

With many opportunities available to a foreign investor in Sri Lanka, yet there are exclusions that prevent foreign investors from investing. Foreign investors are prevented from purchasing shares in a company in Sri Lanka which is proposing to carry on or carrying on the business of either money lending, pawn brokering, retail trade with a capital of less than one million United States Dollars, and coastal fishing.
Limitations[11]:

Apart from the aforesaid exclusions there exists limitation in foreign share investments being made in a company i.e. a company may have only 40% of foreign shareholding in such particular company or if approval has been granted by the BOI for a higher percentage of foreign investment in any company, only up to such higher percentage, which is carrying on or proposing to carry on the business of: producing goods that fall into the category of goods which are Sri Lanka’s exports that are subject to internationally determined quota restrictions, growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices, mining and primary processing of non renewable national resources, timber based industries using local timber, fishing (deep sea fishing), mass communications, education, freight forwarding, travel agencies and shipping agencies.

Furthermore, based on either general or special approvals being granted by the Government of Sri Lanka or any legal or administrative authority set up for the approval of foreign investment in such businesses a foreign investor may invest a particular percentage in the issued capital of the company carrying on or proposing to carry on the business of air transportation, coastal shipping, industrial undertaking in the second schedule of the Industrial Promotion Act, No.46 of 1990, any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials any industry producing currency, coins or security documents, large scale mechanised mining of gems and Lotteries[12].

Pending changes to the Law

Vast changes are taking place with regard to the economic policies of the country with the rush to gain international recognition as a commercial hub in Asia, and at the same time there are many seeking the opportunity to invest in Sri Lanka as well. However, the question remains how favourable such investment will be to the economic and social development of the country.

Amongst many economic policies being presented by government, one such policy is the alienation of land in Sri Lanka. With the implementation of the 2013 Budget Proposal in early 2013 there have been many questions raised regarding the validity of the instructions issued to the Registrar General’s Department and other government authorities through a letter by the Director General of the Department of Fiscal Policy of the Ministry of Finance and Planning.

However as mentioned earlier, a new bill has been presented to parliament titled Land (Restrictions on Alienation). The proposed legislation appears prohibit the transfer of title of any land situated in Sri Lanka to a foreigner, to a company incorporated in Sri Lanka under Companies Act where any foreign shareholding in such company is fifty per cent or above, or to a foreign company, unless exempted as provided in section 3 of the proposed bill[13].

The said bill further goes on to prevent the creation of any lacuna in the proposed law by stating that in order to maintain the legal validity of a transfer of land to a company incorporated in Sri Lanka under the Companies Act, with less than fifty per cent of foreign shareholding, the foreign shareholding of such company shall remain less than fifty per cent, for a minimum period of consecutive twenty years from the date of such transfer and in the event such company increases its foreign shareholding up to fifty per cent before the said minimum time period the transfer of land shall be null and void with effect from the date of increasing of the foreign shareholding[14].

Apart from land being alienated through the transfer of title the proposed bill also addresses alienation of land through leasing, where land is leased to a foreigner, to a company incorporated in Sri Lanka under Companies Act where any foreign shareholding in such company is fifty per cent or above; or to a foreign company, shall be effected subject to the payment of the Land Lease Tax imposed under section 6 set out in the said bill[15], provided however, the maximum tenure of any such lease shall not exceed ninety nine years.

Another problematic situation that is bound to arise due to this said bill is where certain foreign investors who have already purchased or leased out land after the 1st of January 2013 and have not yet registered the title deed or lease agreement, since this proposed laws are to have retrospective effect to all transactions that took place after the 1st of January 2013 and until the speaker gives assent to the proposed legislation.

It is evident that the proposed laws will have an impact on the investments that are taking place and that are to take place in Sri Lanka especially since most investors would consider real estate as stable security provided in order to establish their respective business other than establishing businesses on leasehold property. Sri Lanka being a tropical island most foreign investors have been keen to investment in real estate, but with these new laws coming into place a drastic change is sure to take place.

Conclusion

 It is quite evident that many restrictions prevail when it comes to foreign investment taking place in Sri Lanka but cannot be held that it is not favourable towards the foreign investor but neither is it extremely favourable, since most foreign investments will only take place with the approval of the relevant authorities of the government, which has the likelihood of creating a very stringent economic policy that does not really create a platform for a commercial hub.

One might state that the strict regulations would provide an undue advantage for certain industries to develop in Sri Lanka with the required foreign investment and expert know-how, whilst other industries that do not require much expertise is developed and engaged in the business by the locals without having competition from stronger foreign counterparts.

With the new legislation coming in to place the government authorities will have a stronger role to play in order to ensure that a balance is struck to promote foreign investment whilst also developing the local industries.

Footnotes:

[1] Land (Restrictions on Alienation) Bill, s 25

[2] Salomon v Salomon & Co. [1897] AC 22

[3] Business Names Ordinance No.06 of 1918

[4] Companies Act No.07 of 2007

[5] Extraordinary Gazette Notification No. 1232/14 dated 2002.04.19, s 4

[6] Sri Lankan Constitution, art 157

[7] Extraordinary Gazette Notification No. 1232/14 dated 2002.04.19, s 1

[8] Exchange Control Act No. 24 of 1953, s 10, 11, 15 and 30(5)

[9] Board of Investment of Sri Lanka (Greater Colombo Economic Commission) Act No.04 of 1978

[10] Extraordinary Gazette Notification No. 1232/14 dated 2002.04.19, s 2

[11] Extraordinary Gazette Notification No. 1232/14 dated 2002.04.19, s 3(a)

[12] Extraordinary Gazette Notification No. 1232/14 dated 2002.04.19, s 3(b)

[13] Land (Restrictions on Alienation) Bill, s 2(1)

[14] Land (Restrictions on Alienation) Bill, s 2(2)

[15] Land (Restrictions on Alienation) Bill, s 5

**This article was published in the Fifth Volume of the Junior Bar Law Journal in 2014. At the time of publication of this article the Land (Restrictions on Alienation) Act No. 38 of 2014 was not passed by the Parliament of Sri Lanka.

Venture Engine Competition 2014 – A Solution to the Budding Sri Lankan Entrepreneur

Many reveal at some point or another of becoming an entrepreneur, and having their own ideas made into profitable business ventures. But making such dream a reality is not as easy as it seems, since it requires knowledge, experience, investments, hard work, dedication and also that little bit of luck.

Having met with many budding entrepreneurs and assisted most of them to establish their own businesses in Sri Lanka and providing the legal advice necessary to get established, it is yet a daunting task to commence business operations and ensure sustainability of the company since it is an ongoing process with numerous ups and downs and some of the reasons for such instability is due to the lack of funding and the lack of know-how to operate one’s own business.

With such lacuna existing in most businesses, a unique concept has been introduced by Blue Ocean Ventures and the Indian Angel Network who has collaborated to host Venture Engine 2014, a project aimed at fostering entrepreneurship in Sri Lanka. This project having been initially launched in 2012, has served as a springboard for 12 businesses by providing Rs. 200 million in investment for these businesses.

In Sri Lanka, most entrepreneurs are held with a daunting task of attracting investors, where they have the option of entering into dubious financial arrangements to fund the business and as a result most of the time such businesses are closed down; or the other option of seeking financial assistance through banks, which is well monitored yet the borrower is required to provide collateral for the funding provided by the bank for the business. Thereby it is not always feasible to start up just any business in Sri Lanka. Therefore this project can be considered an answer to any budding entrepreneur with zero collateral but with a well researched business plan looking for that backing towards starting up the business.

The uniqueness of this project is that it involves high risk investments being made by 3rd parties on the equity of the company and nothing else, which is something anyone could hardly find and can be considered the perfect solution for any budding entrepreneur, especially in Sri Lanka.

Another feature of this project is that the entrepreneur is granted the opportunity to convey their business proposal directly to the investors and the selected candidates are mentored by the Indian Angel Network and also the Lankan Angel Network. The selected top ten candidates have a good opportunity to gain the required investment and mentoring to set up and expand their company.

The project might seem not-so-practical from a capitalist’s point of view but proof of the project’s success actually exists in Sri Lanka in the form of thriving businesses such as takas.lk, Wild Trails, Nithya, Lanka BPO Academy, Saraii, House of Lonali, etc.

This initiative is sponsored by Expolanka Holdings PLC, Orion City and also Dialog Axiata PLC. The calling for business plans was officially launched on the 29th of April 2014 and the last date for submissions is scheduled for the 26th of May 2014, after which a selection process will proceed where a panel of local and overseas investors will review business plans of applicants and thereby select a minimum of 20 applicants who will be participating in the second round where the applicants will be provided with valuable critique and insight during the competition process and thereafter these entrepreneurs will be provided an opportunity to pitch to a panel of local and international investors with the most exceptional business plans which shall be announced at the finale.

It can be suggest that Venture Engine is any budding entrepreneur’s solution to starting up and most importantly it generates cultural entrepreneurship which is currently lacking in our society. With the end of a 30 year civil war, and many business potentials springing up, it can be recommended as the perfect opportunity for anyone with entrepreneurial interests to take part in which is definitely an opportunity not to be missed out on.

For more information on the project, the application process and resources visit the official Venture Engine website www.ventureengine.lk. Applicants can submit their applications via email to submissions@ventureengine.lk. For further assistance regarding the project and competition contact inquiries@ventureengine.lk

Carolina: its past, its presents and its black tea

View of the Seven Virgin Hills from the Agarawatta Division Courtesy of Bhagya Senaratne
View of the Seven Virgin Hills from the Agarawatta Division Courtesy of Bhagya Senaratne

The hill country terrain has always been an escape from the tropics for the local and foreign visitors alike. When passing through the mountain ranges, the travellers are able to view picturesque clusters of green spread throughout the hills, which makes up the high end, up country, tea plantations of Sri Lanka. This picturesque view has always been a breathtaking sight to any visitor, who enjoys the splendours of the hill country.

With the temperature dropping to an average low, and with road-bends which are sure to make some travellers slightly giddy, makes up half the experience while on the Avissawella/Hatton/Nuwara Eliya Highway (A7 road). But with the clearing of the foliage when passing through Ginigathhena, the clusters of green start to appear, and with a sight such as that makes the long bending journey certainly worthwhile.

Tea plantation was introduced by the British during the existence of their colonial rule of Ceylon. A visitor being able to visit one of the tea factories built during that rule and reminisce the colonial era is of course an opportunity which definitely should not be missed.

Apart from the scenic view on the A7 road, the perceptive traveller will come across the historical Carolina Tea Factory operated by the management of Carolina Estate which is owned by Watawala Plantations PLC. This is one of the first tea factories to be seen located at Watawala while on the said A7, and which is located passing the Diyagala Junction. And interesting enough the management of Carolina Estate allows visitors to visit this historical land mark and the management is more than happy to share the history of this age-old factory and the estate.

Carolina Tea Company of Ceylon Limited incorporated in 1892 was one of the pioneer tea companies in the country, set up primarily to plant tea. It consisted of a group of plantations situated in Lower Dickoya, which were Agarawatte, Carolina, Kandawella, Mount Jean, Wigton, Udeapola Group, Trafalgar, Goarfell and St.Margaret Estates. The Management of this group that was originally with Leechman and Company changed to Mackwoods Estates and Agencies Limited at a later date. According to the Times of Ceylon Green Book of 1939, this group had over 1,000 hectares in tea.

The Carolina tea factory was one of the original ‘central factories’ constructed closer to the shores of the Mahaweli river that flows by the estate. John Walker, who was the founder of the present Colombo firms, Walker Sons and Company and Walker and Greig, had by then acquired much prominence as a designer of plantation machinery. Therefore the task of planning and equipping the Carolina Factory was entrusted on him.

This factory was built in 1932 and it was indeed an improvement compared to some of the other factories at that time, by having mud free floors and cadjan roofs. The building was constructed with wood, which was assembled firmly on stone pillars. It had three floors going up to the height of 42 feet from the ground to the ridge. The novelty was that very often than not, the green leaf arrived by train. The factory had sufficient capacity to accommodate all the leaf not only from the group, but from many other adjoining plantations who were satisfied with a return of 9 cents (about 2p) per pound. Currently, with modifications being done to the factory and the machinery over the years, the factory can boast of its high accommodation capacity of 22,000 kilo grams of green leaves even today, and manufactures black tea subject to the Cut Tear Curl (CTC) manufacturing process.

At the time the plantations were nationalised, Carolina group had in all 1023 hectares with 579 hectares in tea, however other subsidiary crops such as cinnamon and vanilla had been planted on this property by then. Currently the Carolina Estate consists of Agarawatte, Carolina, Kadawala, Trafalgar and Binoya Divisions consisting of 892.42 hectares and 216.25 hectares are of tea while the other extents consist of cinnamon, vanilla and areca nut.

Carolina Estate Images

Amongst the lush cultivations exists the scenic mountain ranges coupled with pine forests and ever flowing waterfalls which are at times hidden behind the mist yet emerge at times to amaze the un-expecting traveller with the beauty of Carolina.

With the change in times and the demand for upcountry black tea ever so increasing it has been quite difficult for the plantation sector to keep up in this industry especially with the difficulty in hiring labour to work in the fields, whilst ensuring that the demands for the supply of high quality, upcountry black tea are met. Matters get even difficult as explained by Mr. Prasanna Premachandra, the Manager of Carolina Estate when individuals encroach on these estate lands ignoring proper legal procedures and thereby claiming rights over these lands which have been leased out by the government to plantation companies such as Watawala Plantations PLC.

With plenty of tasks and obstacles at hand it is quite commendable to see that the management of Carolina Estate is able to ensure that the manufacture of black tea runs smoothly and the standards of upcountry black tea are met.

The Estate takes pride in its all time records for PF1, BPS and BP1 tea grades and also has won many awards, and has obtained numerous certifications and some of which being HACCP and ISO 22000 certification. The Carolina Estate has also partnered with Ethical Tea Partnership which is a non-profit membership organisation that works with tea producers and tea companies to improve the sustainability of the tea industry.

Visitors are welcome to reminisce the past of the Carolina Estate, explore the scenic presents that Carolina has to offer and of course enjoy that excellent cup of black tea while at the Carolina factory by contacting Watawala Plantations PLC on 011-4702400.

This article was published on DailyMirror Life and http://www.life.lk

Your Thoughts on Investing

Wishing everyone a happy new year!

As my initial post for the year I have compiled a basic survey in relation to investment in Sri Lanka. The purpose of these questions are to determine the factors taken into consideration by the general public prior to investing in Sri Lanka and whether regulations issued by relevant authorities are taken into account prior to making such an investment.

Please note that the information provided by you in this Questionnaire is confidential and particular details will only be released on your consent. Also note that it is not mandatory to fill in your name and email address.

If interested please answer the questions set out in the questionnaire and submit.

Please click the following link to be directed to the questionnaire,
https://docs.google.com/spreadsheet/viewform?formkey=dGJ1ZjFYSlo3X2pocTVMT1lVbFcxU0E6MQ

Thank you!

Incorporating an Entity

Development taking place in Colombo

A company in law, is recognised as a separate legal entity having its own rights and obligations separate to that of those who own and/or run the Company.  Subsequent to passing the new Companies Act No. 7 of 2007, the laws governing the incorporation of companies (Public, Private and Guarantee ) have been reformed. Such reform was welcome by many since it introduced a new system that made the incorporation process less tedious and making the functioning of the Department of  Registrar of Companies (the government body that deals with the company incorporation) more efficient, allowing an incorporation to take place within a week or two.  However, there still exists certain draw backs that need to be addressed, such as establishing branch offices of the Registrar of Companies in other districts,  so that everyone who wants a company incorporated need not come to Colombo to do so, specially since the government is currently on the fast track to develop particular districts. But since the internet is easily accessible by many, why not allow the incorporation of a company to take place online like in many developed nations.

But according to a foreign investor, he was surprised about the manner in which a company in Sri Lanka was incorporated, since it was an uncomplicated process compared to other developing countries in Asia, in which he had invested in.  So clearly it was something to be proud of, but that does not mean we must ponder on such and not evolve with time, specially since the time has come to attract more investment for the development in this country.

For those who are interested in Incorporating a Company, the instructions are clearly given on the Registrar of Companies website.

I happen to meet some young entrepreneurs, wanting to start-up small scale businesses and was opting to incorporate a Private Limited company than to just register the Business name under the Provincial Laws, due to certain benefits that come along by creating a separate legal entity.  So quite evidently the new laws being simplified makes it easy for anyone to incorporate a Company in Sri Lanka.

For those wanting to know the process of incorporating a “Private Company” the procedure is as follows;

Step One: Obtaining Company Name Approval;

Time to complete – 3 days
Cost to complete – LKR 500 + 12% VAT (Cost is subject to change)
Comment – The reservation is valid for 3 months

Step Two:  Registration of the Company;

Time to complete – 3 days
Cost to complete – LKR 10,000 + 12% VAT for registration fee (form 1) + LKR 500 + 12% VAT for each of the forms: 18 & 19 + LKR 500 + 12% VAT for the Articles of Association (Cost is subject to change)
Comment –
A company may draft or adopt the standard set of articles of association in Table A of the Companies Act of Sri Lanka, No.7 of 2007. Professional charges are higher for drafting new articles of association than for adopting the standard articles.

Also, will be required to appoint a registered Company Secretary as per Form 19, who can attend to all Company incorporation matters and other matters pertaining to the Company.

According to the Companies Act No.7 of 2007 the articles of association must be submitted in duplicate printed on A4 paper to the Registrar of Companies with the balance of documents for incorporation. No prior approval from the Registrar General of Companies is required for the articles of association. According to the new Companies Act, a notary public is no longer required to witness the signing of the articles of association.

The certificate of incorporation can be obtained usually in about 3 days.