FINANCE COMPANIES Act, No. 78 of 1988 - IMOLIN · Finance Companies Act, No. 78 of 1988 3 4. (1) A...

Finance Companies Act, No. 78 of 1988

[Certified on 12th December, 1988]L.D.-0. 56/88

AN ACT To PROVIDE FOR THE CONTROL AND SUPERVISION OF

FI N A N C E CO M P A N I E S AN D T O P R O V I D E FOR MATTERS

CONNECTED THEREWITH OR INCIDFNTAL.THERETO.

BE it enacted by the Parliament of the Democratic SocialistRepublic of Sri Lanka as follows :-

1. This Act may be cited as the Finance Companies Act, Short title.No. 78 of 1988

2. (1) Subject to the provisions of section 3, no finance Registrationbusiness shall be carried on except by a public company $,&z&which- un der th is

Act

(a) is registered under the Companies Act, No. 17 of1982; and,

(b) has a minimum issued and paid up capital of notless than five million rupees ; and

(c) is registered under the provisions of this Act.

(2) Every application for registration under this Act bya company shall be made to the Board in the prescribedform, and shall contain a declaration by the applicant thatthe particulars stated in the application are, to theknowledge and belief of the applicant, true and accurate.

(3) Every person who makes any declaration, orfurnishes any information under subsection (2), knowingthe same to be false, shall be guilty of an offence underthis’ Act

(4) Where an application is made to the Board forregistration under this Act, the Board may call for andexamine or cause to be examined, the books, records anddocuments of the company applying for registration.

(5) The Board may, on considering an application madeto it by a company for registration under the Act, registersuch company as a finance company if it is satified that-

(i) the requirements of subsection (1) of this sectionhave been complied with ; and

(ii) on the information made available ‘to it, that itsregistration would not be detrimental to theinterests o f its depositors and creditors.

2-D 002351--9,110 (89/01)

provisionre gardingcarrying o nof financeb usi nessb y person0o r body ofpersons notregisteredunder thisAct.

2 Finance Companies Act, No. 78 of 1988

(6) Where a company is not registered under subsection(5), or a person or a body of persons to whom section 3 isapplicable, has failed to comply with the provisions o fthat section, the Board may issue to such company, aperson or body of persons as the case may be directionsfor winding up or for divesting the finance business carriedon by it and for the settlement of its deposit liabilities andit shall be the duty of such company or person or body ofpersons to comply with such direction.

(7) Where a company or person or a body of personsfails to comply with directions issued under subsection (7)within one month of the issue of ‘such directions, the Boardmay require the Director to take such action as may henecessary, to secure compliance therewith including filingaction for winding up in which event the provisions ofsection 18 shall apply.

.3. (1) Notwithstanding the provisions of section 2. acompany or a person or a body of persons. carrying onfinance business on the day preceding the date of com-mencement of this Act-

(u) may, continue to carry on such business for a periodof two years from the date of commencement ofthis Act, notwithstanding the fact that it is not

registered under section 2 ;

(b) shall take such steps as may be necessary to complywith the provisions of section 2(l) and to divestitself of any of the activities carried on in contra-vention of any direction issued under paragraph(r) of subsection (1) of section 9 of this Act, within a period of two years from the date of com-mencement of this Act, or four months from the

. date of issue of such direction, whichever is later

(2) Every company or person or body of persons referredto in subsection (1) shall on compliance with the provisionsof paragraph (b) of subsection (1) submit to the MonetaryBoard evidence in proof of such compliance. A companyor body of persons complying with such provisions to thesatisfaction of the Board, may apply for registration undersection 3.

(3) Where’ a company or a person or a body of personscarries on finance business under subsection (1), the provi-sions of this Act shall in so far as they are applicable andsubject to the other provisions of this Act, apply to suchcompany or person or ‘a body of persons.

Finance Companies Act, No. 78 of 1988 3

4. (1) A finance company shall, at all times maintain an-unimpaired capital of not less than five million rupees.

(2) A finance company shall .not reduce or impair itscapital or statutory reserves without the prior writtenapproval of the Board.

In this subsection, “ statutory reserves” means any re-serve fund maintained by the company in pursuance of adirection issued to it under this Act.

,5. A finance company shall at all times conduct itsbusiness in such manner so as to safeguard its deposits and

.shall take all such measures as are reasonably necessary toensure that deposits and interest on deposits, are payableto depositors on the due dates.

Unimpairedcapjtal to begm&ind by

companies.

Conduct ofp=;= by .companies.

6. The Board shall keep and maintain in the prescribed f;%&t~ of form a register of every finance company registered under companiesthis Act.

7. (1) Where a finance company has been registered Issue ofunder’ this Act, the Board shall issue to such finance lm!lc~ to

company a licence in the prescribed form permitting such companies.company to carry on finance business.

(2) Such licence shall be exhibited at all times in theprincipal office or place of business of such financecompany.

(3) Every finance company registered under the Act, shallpay an annual licence fee of the prescribed amount to theBoard.

8. (1) Where any finance company registered underthis Act has ceased to carry on finance business, a notice of.such cessation shall be given to the Board forthwith uponsuch cessation, by such company

(2) On receipt of notice of cessation under subsection (l),the Board shall remove the name of the finance companyfrom the register maintained under section 6 and cancel itslicence, and may issue to such finance company directions-for winding up or for divesting the finance business of thefinance company and for the settlement in such manner asmay be specified, of the deposit liabilities of the finance‘company.

(3) Where the Board has reasonable grounds to believe-that any finance company registered under this Act is notcarrying on finance business, the Board may send to such

Duty of financecompanyto notify

ES3 cessation of financebusiness.

4 Finance Companies Act, No. 7 8 of 1988

company, a notice by registered post requiring suchcompany to furnish proof, within two weeks from the dateof such notice, that it has not ceased to carry on financebusiness. Where such finance company fails to furnish suchproof within such period, the Board shall remove the nameof such finance company from the register maintainedunder section 6 and shall cancel its licence. Where theregistration of a finance company is so cancelled, the Boardmay issue such directions as it deems necessary, includingdirections for winding up or require the Director to applyfor winding up of the company, in which event, the provi-sions of section 18 shall apply.

(4) Where a finance company fails to comply withdirections issued under subsection (2) within one month ofthe issue of such directions, the Board may require theDirector to’ file action for winding up the finance companyand the provisions of section 18 shall apply to such windingu p

9. (1) Notwithstanding the provisions of any other law,the Board may give directions to finance companies or toany group or category of finance companies regarding themanner in which any aspect. o f the business of such com-panies are to be conducted and in particular--

(a) the terms and conditions under which deposits- maybe accepted by such companies t h e maximumrates of interest payable on such deposits, and themaximum periods for which deposits may beaccepted and the maximum amount that may bedeposited with a company in the name of oneperson in one or more accounts ;

(b) the terms and conditions under which any loan,credit facility or any type of financial accommodation may be granted by such companies, the maxi-mum rates of interest that may be charged on suchloans, credit facilities or other types of financia.accommodation, and the maximum periods forwhich any such loan, credit facility or other typeof financial accommodation may be granted ;

(c) the maximum rates which may be paid to, or charged,by, such companies by way of commissions, dis-counts, fees or other receipts or payments whatso--(y-or


(d) the minimum initial payment a prospective hirershould make on any hire purchase agreement andspecific different initial payments for differentclasses of transactions ; such minimum initialpayment may be expressed as a percentage. of thevalue of the goods hired under such agreement ;

(e) the terms and conditions under which investmentsmay be made by such companies ;

(f) the maximum permissible maturities for loans,credit facilities or other types of financial accom-modation and investments made by such companies,and the nature and amount of the security thatmay b e required or permitted for various types oflending, credit and investment operations ;

(g) the form and manner in which books of accounts orother records or documents are to be maintainedby such companies ;

(h) the exclusion f r o m the income of companies in wholeor in part, unpaid interest in respect of loansgranted, if such loans have become overdue ;

(i) the minimum ratio whirh the liquid assets of suchcompanies should bear to the total deposit liabilitiesof such companies ;

(j) the maintenance of cash balances by finance com-panies with the Central Bank of Sri Lanka if SOrequired by the Board, and the minimum ratio suchcash balances should beaf to the deposit liabilities’of finance companies ;

(k) conditions which should be applicable to withdrawalby depositors of deposits before maturity ;

(1) prohibiting such companies from increasing theamount of their loans, credit facilities other typesof financial accommodation or investments ;

(m) fixing the limits to the rate at which the amount ofany loans, investments or financial accomniodationmade or granted b y them may be increased withinspecified periods ;

( n ) requiring the decrease of the amount of their loans,investments or fin ancial accommodation to specifiedlimits within a specified period :

3-DO02354 (89/01)


(0) the maximum percentage of the share capital in afinance company which may be held- ;

(i) by a company, an incorporated body, or an individual ;

(ii) in the aggregate by-(a) a company and one or more of the follow-

ing :-

(aa) its subsidiary companies ;(bb) its holding company ;(cc) a subsidiary company of its

holding company ; or(dd) a company in which such com-

pany or its subsidiary company,or its holding company, or asubsidiary company of its hold-ing company has a substantialinterest ; or

(b) an individual and one or more of thefollowing : -(aa) his relative ;(bb) a company in which he has a

substantial interest or in whichhis relative has a substantialinterest ;

(cc) the subsidiary company of suchcompany ;

(dd) a holding company o f suchcompany ;

(ee) a subsidiary company of suchcompany’s holding company ;

(ff) a company in which such com-pany, or its subsidiary company,of its holding company has asubs.tantial interest ; or

(gg) an incorporated body other thana company in which suchindividual or his relative has asubstantial interest. :

Provided, however, that these directions shall not requirethe reduction of the shares of a person held in a financecompany on the date of commencement of this Act, other-wise than on a requirement imposed on him under theprovisions o f paragraph (d) of subsection (1) of section10.


In order to comply with a direction issued to it underparagraph (d) of subs&ion (1) of section 10 a financecompany may direct a person holding shares in such com-pany to reduce the number of shares held by such person insuch company whether such shares were acquired by suchperson before or after the date of commencement of thisAct, within such period as may be specified in such direc-tion ; and it shall be the duty of such person to complywith such direction ;

( p ) the margins to be maintained in respect of securedadvances ;

(q) the terms and conditions relating to Ieasing agree-ments between the company and a lessee ;

(r ) restriction an the types of activities that may becarried on by Finance Companies.

(2) The maximum rates of interest fixed by any directionunder paragraphs (a) and (b) of subsection (1) shall, ifso determined by the Board, apply in respect of any deposit

, accepted or in respect of any loan, credit facility or anyother financial accommodation granted, before the date ofsuch direction :

Provided, however, that nothing in any such directionshall-

(a) apply to any interest accrued before the date of

such direction in respect of any such depositor l o a n , credit facility or other financialaccommodation ; or

(b) require the reduction of the rate of interestpayable on any deposit accepted or loan,credit facility, or financial accommodation,granted before the ,date of such direction, ifsuch reduction would constitute a breach ofthe contract or agreement relating to suchdeposit, loan credit facility or other financialaccommodation, as the case may be.

(3) For the purposes of this Act, the Board may givedirections where necessary to any finance company inparticular on such matters as are specified in subsection( l ) :

Provided, however, that a competent court may, onany application made to it in that behalf by a financecompany at any time while any direction is in force,

ProcedurewhereDirector isof opinionthatfinancecompany isfollowingunsoundpractices,


make a declaration permitting that company to carry onits business without being subject to such direction, ormay vary or alter such direction in such a -manner as thecourt may determine, and any declaration by the courtas aforesaid shall have effect notwithstanding anything tothe contrary in the direction made by the Board.

(4) The Monetary Board may in its discretion payinterest on any cash balance maintained by a financecompany in the Central Bank of Sri Lanka, in pursuance ofa direction. issued to it under paragraph (j),at such rate asmay be determined by the Board.

10. (1) where the Board on a report made by theDirector is of the opinion that a finance company-

(i) is following unsound or improper financial practices,detrimental to the interest of its depositors ;

(ii) is like to be carrying on its business in a mannerdetrimental to the interests of its depositors ;

(iii) has contravened or failed to ‘comply with anyprovisions of t h i s Act, or any direction issuedthereunder,

the Board may direct such Company-

(a) to cease following any such practice or desist fromsny such contravention; or

(b) to company with the provisions o f this Act ; or

(c) to take necessary action to correct the conditionsresulting from such practice or contravention ; or

(d) secure the reduction of the number of shares heldi n the company by any person.

(2) Any finance company dissatisfied with an order givenunder subsection (1), may, before the expiry of thirty daysfrom the date of the issue of such order, appeal in writing tothe Board and the Board shall render its decision withinfifteen days of receipt of such appeal.

Director orauthorizedofficer tore quireproductionof booksfoari ;Fmi-

11. (1) The Director or any officer authorized by himmay require any person or a body 0f persons to .tUrnisllhim with such information as he may consider necessaryto ascertain whether such person OJ! body of persons iscarrying on finance business, and for this purpose, mayrequire the production of , <.nd examine any books or recordsibrelating to such person or t-Jti.;y of persons, and if he is ofthe opinion that such person or body of persons iscarrying on. finance brisiness. report such fact to the Board.


(2) !1 the Eo~d, on consideration of a re,port undersubsection (1)) determines that a person or body of personsis carrying oI-n anance business, it shall require such perrcncr body of persons to compiy with the requirements of theAct within a specified period of time, and where it failsto do so, shall have the power to give directions and takesuch steps as it considers necessary to safeguard depositors,inc’uJi~g the power to wind up persons or a body cfpersons, in T.vhich event the provisions of section 18 shall,n:.,,tatis nt~itandis, apply.

(3) .Pti~y person or body of persons required to furnishinformation or to produce acy books or records undersubsection (i) shall furnish such information or producesuch i’c)oks, or records, documents to an officer authorizedt.y the Director and shall comply with any directions orrequirements made under subsection (2).

(4) V<ithout prejudice to the generality of subsection (1))!he 3oaId may requir e any lserson or a Brady of persons tolurnish informqtion as may b12 necessary to ascertainwhether any sum of money accepted, borrowed or solicitedby such person or body of persons is a deposit.

.12. (1) The Director may. at any time, examine or Power ofn;;t?L3::ze any ofiicer of his department to examine, the ~~$$“”I:.x;:s and ~counts of any finance company. books ‘and

accounts OF(2) The report on any such examination shall be finance

EurnishLd to the Governor of the Ccstral Eank of Sri LankacompZn>-.

by the Director as soon as such examination is completed.The Director may recover the costs of such examinationfrom the finance company.

(3) !t shali be lawful for the Director or any oEcera.~f!lorized by him-

(a) to ad.minister, i n accordance with the OathsOrdicance, oaths or affirmations to any directcr,manager, secretary, employee or auditor ,of s.n:Jfinance company ;

(b) to require any director, manager, secretary, employeeor auditor of any finance company to furnish al1such information relating to the affairs of thecompany, as the Director or any oEe;;ecr authorizedby him may consider necessary to ascertain, for thepurpose of %!ais Act ;

lo I Finance Cohpanies Act, No. 78 of 1988

(c) to require any director, manager, secretary, employeeor auditor of any Mance company to produce forinspection any books, records or documents relatingto the tiairs of the company, in his possession orcustody, likely to contain any such information ;

(d) in any case where there is evidence of mismanage-ment by a finance company, to require any director,manager or secretary of such finance company tGsubmlit the accounts of t.he finance company foraudit by an auditor authorized by the Director andto require the finance company to furnish suchinformation, or produc’e such books, records ordocuments and to pay such fees, as may be specifiedor authorized by the Director, to such au.ditor.

(4) It shall be the duty of every director, manager,secretary, employee or any auditor of any finance companyto comply with any requirement imposed on him under thissection and to afford to the Director ‘or t o a n y 0fTicerauthorized by him, or to any auditor authorized by hi:nufider 23ragra,b (d) oi” subsection (3)) access to all booksand records of that ,Snance company including its cashbalances, assets and liabi!ities whenever requested to do so

by the Director.

(5) The Director may, w.here he considers it necessary toastert2in the true condition of the affairs of a financecompany and to ascertain whether such finance company iscarrymg on business in a Amanner detriment2.l to its presentor future depositors, by notice in writing require any perso:;v:h~nz he considers to have information relating to theLn2nce company, to furnish such informa<ion to him or toZIIY oi?Icer authorized by him or to any auditor authorizedby him under paragraph (3) of subsection (3) or to attendin per~%l before him or any officer authorized by him, atsuch place and at sach date and time as m2y be spec&djll SUCh nG’kX?, SO that the per,Tm may be e:<z:l;?iced 011 sll&:XI~~SS ss :~2;ny be ,ypecll”;ed irl such notice. I

(6) i ‘Or t?K ~UrpGse Of ascertaining the true condition cfthe affairs of the fYnan:e compally, t,he Director may if he‘Lhid<S it necessary for the purposes of an exam.fnation undersllbxectiun (5)) also examine the business of any companyv~hi::l~ .“s or hgs at any relevant time been---

(CL) 3 hoX.ing comp21~y or subsidiary coz~any of the!iiiance company under examination ;

Fil:c?zce Companies Act, No. 78 of 1988 11

(b) z subsi3ary company of a holding comp2ny of that‘ lSnance company ;

(c) cii-3 asmciate ccxpany of that finance company,

arld Wily exercise in relation to any such company, any Ofthe powers conferred on him by the preceding provisions .OF this se:-5on.

In this subsection :‘ associate company” :then used inrelatior to a Ezance company, means a company in whichthe imance cornpa!;;’ holds ordinary shares equivalent toturenty perce,cL?LTrv or more, but less than fifty percenttimof the yaid up share ca~iial of the company.

128 VYhere the Ecdrd proposes to take action against a TFoI tofiv:.nce company ‘based upon a report made under seceiorl I:! companjjor section 18, it shall furnish to such company a copy of- to statew~ch report, exeludir?g the part containing the recommenda- its position

behre:j!jns ;-na$.c3 j-, .‘~z Dreetor and ttllo~ the company a perio.2& takingof at le;rt seven days to state to the Board, its position in action

against itle;.;& i’ ;c such report. on a repoTt

maJe undersection 12

!\Jc;I~i,:g in this subseetlen shall be deemed to prohibit or sectionthe XXIC~~~.~ Board from taking action on the renqrt I**witnout r!lowing the company to state its ,position in regardtr, sn:h report where the Board is of the view that i,t is~cessary to take immediate action, in the interest ofcir,po+t~~ and the finance company.

13. Every i;lnance company shall prepare at the e’;pira- Accsuntsoftip: <,-< c=;& f:‘;::ancial year- Si7snce

Company.

(c;! a balance sheet as at the last working day of eachfinanc,ial year ; and

(b) a m~ofit and loss account in respect of such year.

14. (I) The balance sheet of a’ finance company shall JS&MXset out the state of affairs of such company as at the end oithe financial year to which such balance sheet relates.

of financecompany.

(2) There shall be shown in the balance sheet or in anystatement annexed thereto-

(a) capitalized expenses not represented by tangibieassets under separate headings, so far as they arenot written off ;

(b) the market value of investments;

1 2 E’i.nunce Companies Act, No. 78 of 1988

(c’; the methoo adopted to value fixed assets if th:+re:lad been any valuation of such assets during thefmancial year ;

(35,~ the aggregate amounts of advances after theprovision for bad and doubtful debts ;

(e) dny increase or decrease in the pl,ovision fordepreciation renewals, or diminution in the val.ueof fixed assets ;

(j) ihe sources and application of funds 1

(9) reserves, provisions and liabilities dktmguishablefrom each other;

(jz) except in the case of the first balance sheet after ti,cdate of commencement of this Act, the corres-ponding amounts at the end of the immediatelyprecedmg financial year for all items shoivn in thabalance sheet.

Profit andloss account. 15. There shall be shown in the profit and loss account

or 117 any statement annexed thereto.

(a) the amount charged to revenue by way of provi:;ienfor depreciation, renewals or diminution ii1 valueof fixed assets ;

( 7.‘J ,' :::e aur.o~mt charged to revenue for Sri Lanka income

tax and other Sri Lanka taxation en profits anddistinCguishab2e from such accounts, the amountsand materials, set aside, or proposed to be set.aside, for liabilities in respect of tax due in thecurrent yea.r of taxation or a suezeding year ;

cc) the aggregate amount of dividends paid @r pr0p0~~1to be paid ;

(d) the amount of remuneration of auditors ;

(e) :he amount charged to revenue representing theaggregate amount of the emolumerits of directors ;

(j) the amount set aside or proposed to be set aside to, orwithdrawn from reserves ;

(g) under separate headir:Ss, the profit or loss or theincome and expenses arising from transactionssuch as are not usually carried on by the finance

.Fmance Companies Act, No. 78 of 1988 1 3

company and are carried on owing to circumstancesof an e>:ceptional or nonrecurrent nature or by achange in the basis of accounting ;

(h) except in the case qi the first profit and loss’ accouzcaiter the Lick of commencement of this Act, thticorresponding amount at the end of the immedi-ately preceding financial yea: :‘or a?1 items shownin the profit and loss account.

16. (1) Every finance company shall transmit to theDirector al;d publish within six monlhs after the close ofthe financial year-

(a) the profit and loss account of the, company for thatyear ;

(b) the balance sheet as at the date to which such profitand loss account is made up ;

‘(c) the auditor’s report attached to such profit and lossaccount and balance sheet ; and

(d) the report by the directors relat+g to the state of ’the ai”airs of the company a.ttacfi:x=d to such balancesheet.

(2j Every finance conqany shall e~::,1,It the balancesheet and profit and 1.0s~ account of s:.;?ii comp.:;?y in aconspicuous part of each of its places of ousiness until thebalance sheet azd pro& and loss account ?‘o;- the succeedingfinancial year are prepared and exhibited.

(3) The Board may specify the form of the balance sheetand profit and loss account referred to in this section andwhere such form is specified, the balance sheet and profitand loss account of every finance company shall be prc-pared in such form as is specified.

17. The Auditor of a finance company shall inspect theaccounts, t,he finances, the management of the finances andthe property of that finance company. The Auditor shall asfar as possible, and where necessary examine-

(u) whether the conduct of the affairs of the financecompany has been in accordance with the law,rules and directions issued by the Board ;

(b) whether records relating to the acceptance of depo-sits and maintaining of accounts are satisfactory ;

Publicationof balancesheet axldprofit a n dlossaccount offinancecompany.

AuditingO facwunts.

IS b’inance Cmmpanies Au, No. 78 of 1988

(c) whether the accounting systems, procedures, books,records and other documents have been properlyand adequately designed from the point of view offinancial control purposes and from the point of .’view of the presentation of information to enablea continuous evaluation of the activities of thefinance company and whether such systems, pro-

1ceoure’s, books, records and other documents arein effective operation ;

jd) whether the accounts audited have been so designedas to present a true and fair view of the affairs ofthe finance company in respect of the period undercorsideration due regard being had to prlnc$iesof accountancy, financing and valuation.

16. (1) In any case where the Dkector is satisfied after vi~niin~ UF-examination by himself or by any officer authorized b:~him, of the affairs of any finance company, or upon informa-

. tion received from tl;e company, that it is insolvent or islikely to become unable to meet the demands of iis depo-sitors or that its continuance in @>usiness is likely to I+olve[loss to its depositors or creditors, the Director shall m.akea report accordingly to the Governor of the Central Bankof Sri Lanka for submission to the Board ; and i1 the Boari;:upon review of the fal.s and circumstances, is of opinionthat action should be taken as hereinafter provided, theBoard may make an order directing the company forthxvithto suspend business and directing the Director to takecharge of all books, records ard assets of the company, andto take such measures as may be necessary to prevent thecontinuation of business by the company.

(2) Any director, mana-ger, secretary or employee of afinance company or any other person having in his posses-sion or custody any books, records or assets of the company,who fails to hand over the same to the Director or to anofficer authorized by him, or any person who obstrudts orresists the Director or an officer authorized by him fromtaking charge of any books, records or assets of the com-pany or from taking such other m1?casures as the Directormay consider necessary to prevent the continuation ofbusiiz?ss by the company shall be guilty of an offenceunder the Act.

(3) Notwithstanding an~ythiag in any other law, noaction or proceeding may be instituted in any court for thepurpnse of securing the review or revocation of a.ny order

J’inance Companies Act, No. 78 of 1988 1 5

made in goodfaith under subsection (1) or in respect ofany loss or damage incurred, or likely or alleged to be in-curred by reason. of such order.

(4) An order made by the Board in respect of any financecompany shall cease to have ef&t upon the explralion ofa period of sixty days from the date on which it is madeand it shaI1 be the dut;y of the Board as soon as praclizableand in any event before the expiration of such period to-

(u) made order permitting the company to resumebusinesc9 either unconditio;?ally or subject to suchcondition as the Board may consider necessary inthe public interest, or in th.z interest of the deposi-

/. tors and o&r creditors 0: the company ; or

(b) notify ‘Lhe finance csmpany that it intends to causethe Director to make application as hereinafterprovided to a competent court for the winding up

of the company,

Without prejudice to the gencraiit.y of the powers c&err~dby paragraph (a) and notwithstanding any other :-iv orthe mcrz?orandum and articles of association of the com-pany , the Bo2:d may, as a condi”iion of permittiflg tilecompany to resume business, remove any &rector, managzror employee c,.. YL& company where it is of the view thatthe cor.tinual1c.z of such director, manager or employee inthe corcsanv is detr::xe;;-tal to the interests of its dzcositorsand api;5nt any person as director, manager or errployeeof s;ch company :

Provided however that .the number of persons so appoic-ted as directors, shall not constitute a majority in theBoard of such finance company.

(5) If the finance company has not made an application

to the Supreme Court in accordance with section 43 or

where the #court has rejected the application of the finance

company, made in accordance with that section thk Director

shall make an application as hereinafter provided to a

competent court for the winding up of the company.

(6) Dnriq the period in which the business of a %ance

company is suspended under subsection (I), the Board may

if it considers it in the public interest to do so meet any

expenses connected with the administration of that ccm-

pany out of the fu.rG of the Central Ezmk of Sri Lanka.

?C Finance Cojmpanies AcC,'No. 78 of 1988

(7) The competent court may, on any application madeby the Director order the winding up of any finance com-pany and accordingly the provisions of the Companies Act,No. 17 of 1982, relating to the winding up or companiessubject to the supervision of court shall, mu~aC%s mWn&s,apply to the winding up of such company.

(8) Where appiizstion is made for winding up of a per-son or body of persons (other than a company) under thisAct, the value of the assets and liabilities of such personor body of persons shall be ascertained in such manner andupon such basis as the liquidator thinks fit. The competentcourt may at any time after making a winding up orderauthorize the liquidator to realise all assets and mayrequire any person to pay, deliver, convey, surrender ortransler forthwith or within a specifi’ed time, to the liquida-tor any money, property or books and other documents inhis hands to which such person or body of persons is entitled.A scheme for the purpose of ‘Ihe winding up such person orbody of persons shall be prepared by the liquidator andsubmitted for confirmation to the competent court and thewinding up of such person or body of persons shall becarried out according to the scheme.

(9) In al?j' case where an order is made, whether inpursuance of an application under this section or otherwisefor the winding up of a finance company, person or unin-corporate body of persons (other than a company) thennotwithstanding anything in any other written law, the .Director or any person authorized in that behalf by theBoard shall be appointed to be the liquidator for the pur-poses of such winding up. Where an order is made to windup a -person or body of persons other than a company theremuneration of a liquidator appointed hereunder and allcosts, charges and expenses properly incurred in the wind-ing up shall be payable in priority to all other claims, not-withstanding any other writen law to the contrary, out ofthe assets of such person or body of persons being wound

up.

(10) Any costs, charges and expenses incurred in thewinding up of a finance company may be paid. out of thefunds of the Central Bank of Sri Lanka where the Boardconsiders it in the public interest to do so.

Finance Companies Act, No. 78 of 1988 1 7

(11) In any case where application is made by theDirector as provided in subsection (4) for the winding upof any finance company-

(a.) the company shall not carry on business during thependency of the application, unless it is authorizedso to do by the court and except in accordance withsuch conditions, if any as may be specified by thecourt ; and

(b) if the court is of opinion after such inquiry as itmay consider necessary that the company is notinsolvent, it may make a declaration permittingthe finance company to resume business, either un-conditionally or s.ubject to such conditions as thecourt may consider necessary in the public interestor in the interest of the depositors and other credi-tors of the company.

(12) Every order made by a competent court under thissection shai! be subject to an appeal to the Supreme Courtand the provisions of the Civil Procedure Code re!ating toappeals in civil actions shall apply, mutatis mutandis, inthe case of any appeal :

Provided that an order under paragraph (a) of subsec-tion (11) shall be final.

(13) Every application to a competent court under thissection sh,all be deemed to be a proceeding of the value offive thousand rupees.

(14) In this section “competent court ” in relation toany finance company means the District Court of Colomboor the District Court of the district in which the principaloffice in Sri Lanka of the finance company is maintained.

19. (a) Any direct.or, manager, secretary or employee of

any finance company who fails to attend in person or to

furnish any information or to produce any book, record or

other document when required so to do under section 12

by the director or by any ofrcer authorized by him or who

obstructs or fails to permit the Director or any officer

auth.orized by him or auditor authorized by him under

paragraph (d) of subsection (3) of section 12 to make any

examination under section 12 shall be guilty of an offence

under this Act.

18 Chance Companies Act, No. 78 of 1988

(b) Any person who in any report or information furnish- 1ed to the Director or to any officer authorised by him or to :any auditor autherized by him under para.graph (cl) of sub-

\

section (3) of section 12, makes any statement which he .knows to be false, shall be guilty of an offence under thisAct.

Board maytake overadministra-tion andmanage-.ment o f af i n a n c ec9lTipnny.

20. (1) If the Board after review of the facts and cir-cumstances upon the receipt of a report by the Directorunder section 18 is of opinion that a finance icompany maybe made a solvent and l;iabie by action as hereinafter pro-vided, it may by a noLLiL‘irn published in the Gazette takeover the administration and management of a finance corn-pany for such period as may be specified in such notice. TheBDard may by a subsequent Notice published in theGazette extend the period specified in the original notice.The Zoard shalt cause copy of every such notice to be sentto the Registrar of Companies who shall make a minutethereof in the books relating to the company.

(2) Where the Board takes over the administratiun andmanagement of a finance c;n.~p?zny the Board may-

(a) exercise, perform and discharge with respect to suchfinance company all the powers, duties and fun-ctions conferred or imposed on, or assigned to, theBoard of Directors of such company by or under

’ any written law or bg the articles of association ofsuch company.

(b) enter into any agreement with any person or body ofpersons for the management of the finance com-pany subject to such conditi.ons as may be agreedupon between the Board and such person or body ofpersons having regard to the interests o’f the de-positors and creditors of the company and in thepublic interest.

(c) make such arrangements as it considers necessary forthe amalgamation of the finance company with an-other finance company or any other institution withthe consent of such other finance company or insti-tutions.

r”inance Companies Act, No. 78 of 1988 19

(d) re-organ&e such finance company by increasing itscapital, arranging for new shareholders, a&by re-constituting its Board of Directors.

(e) retconstruct the finance company in any such manneras it considers to be in the interest of depositors ; or

(f) direct any shareholder of any finance company todivest or transfer the ownership of any sharesowned by him to a person nominated by the Boardon payment by such person of compensation deter-mined as follows-

(i) where such shares are quoted, at the marketvalue thereof ; or

(ii) where such shares are not so quoted, at a priceto be determi-ed by a valuer nominated -sythe Board.

(3) During the period for which the administra”:ion andmanagement of a finance company is taken cvzr by theBoard, every director, manager and secre!.q of such fin-ance company shall, unless expressly authorized to do so bythe cease to exercise, perform and discharge anypowers, duties and functions witi respect to such company.

(4) Where the administration and management of af?nance company is taken over by the Board under sub-section (I), the Board may x‘here it considers it in thepublic interest to do so- .

.

(a) arrange for or grant, such financial accommodationas it may consider necessary to the finance com-pany by way of loans or other accommodation,other than by way of grants; and

(h) meet all costs, charges and expenses incurred in theadministration and management of the company:

Provided however that the Board may at any time afterthe take over of the administration and management of a fin-ance company under subsection (1) suspend the bussiness of the company temporarily, if it is of opinion, that it is in theinterest of the prublic or of the depositors to do so,or direct the Director to apply to a competent coufc to windup the company, if on a report made by the Dire&or OT any

i person authorized by the Board, it appears to the Board that; the ccm~x~y car-mot be made viable and solvent within a

Providingof tem-waryfinancialassistanceg?; ;2I_ a .

Pcwer ofBoard tavarycontractsenteredinto byFinanceCompanies,theadministra-tion ofwhich ithas takenover.

20 F’znance Companies Act, No. 78 of 1988

reasonable period of time. In the event of the Board direc-ting the Director to wind up the finance company, the pro-visions of section 18 relating to winding up shall apply.

21. (1) Tn any case where the Director is satisfied, afterexamination by himself, of by any officer authorized by him,of the affairs of any finance company or upon informationreceived from the finance company that it would be in the

‘., interesl; of depositors to provide temporary financial accom-modation to such finance company, the Director shall reportaccordingly to the Board, and the Board may grant a loan oradvance to a commercial bank from t,he Medium and LongTerm Credit Fund established under section 88~ of theMonetary Law Act (Chapter 422): ror the purpose of lend-ing to such fiilailce company on such terms and conditions :as may be determined by the Board.

(2) The provisions of section 88~ to 88~ of the MonetaryLaw Act shall, nzz,~ci!-is rrzulan&s, apply lo any loan or ad- ,vance granted to a commercial bank under the provisions ofsubsection (1) .

22. Not;Nithstanding the provisions of this Act or anyother law, the Board May--

(a) ,review any contract entered into by a depositor witha finance company the management and administ-ratian of which is taken over by the Soar& and may_.vary the terms of such contract, including the termsrelating to repaym.ent, interest rates and chargeswhere it considers that such contract has been en-tered into without due regard to the interests of de-positors or creditors or due regard to prudent com-mercial pratice ;

(b) review any agreement or contract entered into by afinance compary the management and administra-tion of which is taken over by the Board, with anyperson or body of persons and if upon, such re-view, it appears to the Board that the agreement orcontract has been entered into without due regzmito the interest of the depositors and creditors orwithout due regard to prudent commercial pr?:-tice, vary the terms of such agreement or c,?n’lract.


28. Where the Board has taken over the administrationand management of a finance company under section 20, the

FOO$t$;.

Board shall not be liable or subject to any action or procee-dings in any court in respect of any loss or damage sufferedor incurred or alleged to have been suffered or incurred byany person by reason of any act or thing done or omittedto be done in good faith by the Board or in the exercise ofany power, duty otr function conferred or imposed on, orassigned to, the Board by or under subsection (2) of s tion20.

24 (1) Where the Board has taken over the administra vesting of financetion and management of a finance company under section companies20, the Board may, in order to take steps to safeguard theinterest of the depositors or creditors by order published in

~oa;~tutO~Y

the Gazette, vest the administration and management ofsuch finance company in any statutory board or person withthe consent of such statutory board or person. On thepublication in ‘the Gazette of such order, the administrationand management of such finance company shall vest in suchstatutory board or person which shall exercise, perform anddischarge with respect to such finance company all thepowers, duties and functions conferred or imposed on, orassigned to ; the Board of Directors of such company by orunder any written law or by the articles of association, ofthe company.

(2) Where the Board has vested the administration andmanagement of a finance company in any statutory board orperson by order made under subsection (1) the Board maydirect any shareholder of such finance company to divestor transfer the ownership of any shares owned by him to aperson nominated by the Board on payment by such personof compensation calculated as follows:-

(u) where such shares are quoted, at the market valuethere of ; or

(b) where such shares and not quoted, at the price to bedetermined by a valuer nominated by the Board.

25. (1) If the Board upon review of the facts and Steps tocircumstances upon the Director making a report under he taken

upon thesection 18, is of the opinion that any past or present Direc- Dire&ortor, chief’ executive, manager, employee or an agent of a F$:o$tfinance company has frauduently, wrongfully or unlawfully ;;c:;$n 38enriched himself or any other person or persons by mis-

.

application of any money or property belonging to the corn-pany, the Board may notwithstanding that action has also

4-D 002354 (89/01)


been taken under section 18 or Xl, require BLICI~ person crpersons to repay or restore to the finance company themoney or property attributable to the finance company,with interest at such rate as the Board may think fit withinsuch period of time as may be specified by the Board.

(2) Where any person referred to in subsection ’ (1)above fails to restore to the finance company, the r-snies orproperties referred to in that subsection, the Board may-

(a) direct such person to disclose to any officer authoriz-ed by it witnin a specified time, the value, natureand whereabouts of any monies, properties orassets-

(i) owned by such person; or

(ii) in which, such person has a beneficial interest;or

(iii). acquired or purchased or held or possessed, by ’a relative of such person or any other person,in trust for such person, or acquired or pur-

’chased with monies attributable to the assetsof the finance company.

(b) require such person to furnish a sworn statement inwriting enumerating all movable or immovabie pro-perty owned or possessed at any time, or at suchtime as may be specified by the Board by such,person specifying the data on which each of theproperties enumerated was acquired and whetherthe acquisition was by way of purchase, gift, be-quest, inheritance or otherwise;

(c) require any other person to furnish a sworn state-ment in writing-

(i) enumerating all movable or immovable propertyowned or possessed at any time, or at suchtime as may be specified by the Board bysuch p:3rs:Tn, where the Board has rzasona*,-eI.1

grounds to believe that such informat:on eariassist an :zvestigation into the affairs of aFmance Company;

.(ii) confsining particulars of such other matters

which in the opinion of the 3oarcl crz relevantto such investigations ;

Ninawe Companies Act, No. 78 of 1988 23

(cl) require the manager of any bank in Sri Lanka toproduce within such time as may be specified in thenotice, any book, document or’ cheque of the bank,containing entries relating to the account of suchperson or to furnish as so specified, certified copiesof such entries;

(e) require the Commissioner-General of Inland Revenueto furnish, as specified in the notice, all informationavailable to such Commissioner-General relating tothe affairs of such person and to produce or furnishas specified in the notice., any document orIcertified copy of any docuinent relating to suchperson, which is in the possession or under thecontrol of such Commissioner-General ;

(f) invite the public. by any means Whatsoever to furnir;hto a person authorized by it, any informationreferred to in paragraph (a) ;

(g) zerve a notice on any p,erson referred to in subsection0) t or on a relative or other person holdingproperty or assets in trust for the first mentionedperson, or on any other person holding property orassets purchased v{ith monies attributable to thefunds of a finance company prohibiting the transferby such person, relative of such person, or otherperson, of possession, ownership or any interest inany properties or assets specified to in .that notice,nnd also-

(i) requiring such person to hand over to theDirector, in the case of a motor vehicle. thecertificate of Registration issued by theRegistrar of Motor. Vehicles ; in respect ofthat motor vehicle ;

fii) in the case of immovable property the photostatcopies of deeds relating to the title of suchproperty ;

Every notice issued under this paragraph shall bein force for a period of ninety days ;

(h) serve a copy of the notice referred to in paragraph(g) on any relevant authority including in the caseof immovable property, the Registrar of Lands, inthe case of’ motor ’ vehicles, the Commissioner. ofMotor Traffic and ii the case of shares, stocks and

2 4 Finance Companies Act, No. 78 of 1988

debentures of any cotipany: the Registrar ofCompanies and the Secretary of the relevant financecompany ;

(i) reGuire any authority on whom .a copy of a noticere;erred to in paragraph (h) is served, to register'f

such notice in the appropriate books or records in ’the custody of such authority; I

(j) acquire any authority referred to in paragraph (F,)to furnish such information as he may have in hispossession or custody relating to the properties,assets of any person or relative of a person, referredto in paragraph (a) ;

(k) (i) before the expiration of the period of ninety d,aysfor which a notice served under paragraph(g) is in force, the Director may imiake anapplication by way of summary procedure tothe District Court having jurisdiction in the.district. within which any property specified insuch notice is situated, for an order authorizingthe seizure and sale of such property, and fora writ of execution for seizure and sale of sllchproperty,

(ri) a District Court upon, application made to itunder sub-paragraph (i) and being satisfied thatthe property referred to in the application, orany interest therein, has been acquired, whetherdirectly or indirectly, with funds attributablein whole or in part, to a Finance Company,direct a writ of execution to issue to the Fiscalauthorizing and requiring him to seize and ssll

1 such property,

(!li) the provisions of sections 226 to 297 of the CivilProcedure Code shall, mutatis mdandis, applyto the seizure and sale of any property under awrit of execution issued under sub-paragraph(ii),

(i\>) any sum realizcd by the seizure and sale of anyproperty under this paragraph shall, be appliedby the court-

:

3.

(n) firstly, in payment of the costs and chargesincurred in seizing, keeping and sellingsuch property ;


(b) secondly, in satisfaction of the amountdetermined by court to be attributable tothe finance colmpany, referred to in sub-paragraph (ii), and the balance shall bepaid to the owner of the property seize3.

26. (1) Notwithstanding the provisions of any otherwritten law or the Memorandum and articles of associationof a finance company, the Monetary Board may, where aOrder has been made by the Board under paragraph (a) ofhbsection (4) of section 18, on a report made by theDirector-

(u) make such arrangements as it considers necessary forthe amalgamation of the finance company withanother finance company or any other institution;

‘with the consent of such other finance company orinstitution ;

(b) reorganise such finance company by jncreasing itsCapital and arranging for new shareholders and byreconstituting its l3oard of Directors ; or

(c) re-construct the finance company in any such manneras it considers to be in the interest of depositors ;

(d) direct any shareholder of any finance company todivest or transfer the ownership of the sharesowned by him, to a person nominated by theMonetary Board, on payment by such person cfcompensation determined as. follows : -

(i) where such shares are quoted, at the marketvalue thereof ; or

(ii) where such shares are not quoted at a price tobe determined by a valuer nominated by theBoard.

(2) A shareholder who fails to comply with a directiongiven to him under paragraph (cl) of subsection (1) shall bc!guilty cf an offence.

27. The Central Bank of Sri Lanka may-

Power ofDirectorto issuedirect ionsin respect ofconnectedmatters.

Insitranceof deposits.

(a) notwithstanding anything in section 10 of theInsurance Corporation Act, No. 2 of 1561, or otherwritten law, establish, maintain, manage and con-trol a scheme for the insurance of deposits held by,I .

2 6 Finance Companies Act, No. 78 of 1988

linance companies registered under this Act andrequire such companies to insure the deposits heldby such companies, under such scheme ; or

(b) require finance companies registered under this .&tto insure the deposits held by such companies underany scheme for the insurance of such depositiestablished by any such institution as is specifiedby the Eoard.

Applicationto be ma&to CentralBank forinsuranceof deposits.

28. (1) Where a scheme for the insurance of depositshas been established by the Central Bank under paragraph(aj of section 27 every finance company registed under th.5

Act shall, apply to the Central Bank to insure the deposits‘held by such company under the scheme.

(2) The Central Bank of Sri Lanka may in its discretior,accept or reject any application made under subsection (ljand where it accepts such application, require the applicantfinance company to pay such premium to the Central Bank-f Sri Lanka on the insurance as may be determined by the‘Zoard from time to time having regard to the risks involved.

(3) ‘J’he premium shall be payable for such periods: stsuch t:mes and in such manner as may be determined bythe Monetary Board.

(4) ?f an insured financ-n company makes any default inthe payment of any premium, it shall, for the period of suchdefault, be liable to pay to the Central Bank of Sri Lankainterest on the amount of such premium at such rate asmay be determined by the Board having regard to the losseslikely to be incurred by the Board, by reason of suchdefault.

Rulesrelating todepositinsurance.

29. Ru;es may be made by the Board in respect of-

(a) the interest which may be charged from an insuredfinance company, where it makes default in thepayment of premia;

(o) any matter that is stated or is required to beprescribed or in respect of ‘which a rule isauthorized to be made under this Act for thepurpose of insuring of deposits of financecompanies ;


(c) any other matter affecting, connected with or inci-dental to the exercise, discharge or performance ofthe powers, functions and duties of the CentralBank of Sri Lanka under sections 27 and 28 of thisAct. I

, 30. Notwithstanding the provisions of subsection (1) c>f Non-apply-section 2, the provisions of this Act shall not apply to the cat@. ofbusiness of any banking institution as defined in the ~~);~~@$,Monetary Law Act (Chapter 422), or to a co-operative ;~~~i~tions.society registered under the Co-operative Societies Law,No. 5 of 1972, or the business of.the National DevelopmentBank established under the National Development BankAct, YEI. 2 of 1979, or to the Development Finance Corpora-.tlon of Ceylon established under the Development FinanceCorporation cf Ceylon Act (Chapter 165).

31. (1) .Where a deposit with any finance company has z;;$r$ oflain dormant, that is to say, where a depositor has not called depositfor wvjllldrawal of the deposit on maturity for a period of Fcc;{z$ten years after maturity, (or where there hag been no Centpalreceipt by the finance company of any written correspon- Bank.dence from the depositor or his lawful representative inrelation to the deposit for a period exceeding ten years), themonies lying in deposit together with interest thereonaccrued, if any, shall notwithstanding anything containedin any other law, if the Board so directs, be transferred bysuch finance company to a special account in the CentralLank of Sri Lanka.

(2) Any person who furnishes proof to the satisfacticnof the Doard, that any monies lying to his credit in his namewith anv finance company registered under this Act or inthe rrlme of a person from whom he derives title have beentransfer red to a special account in the Central Bank of SriLanka under subsection (1) shall, subject to such terms,ccnditions or restrictions as may be imposed in respect ofsuch monies, by or under any written law, be entitled torepayment of such monies by the Central Bank of Sri Lankatogether with the interest payable on such monies upto thedate of repayment at such rate as the Board m,ay, fromtime to time determine, or .without such interest, if theBoard so decides.

(3) Any monies transferred to a special account undersubsection (1) may be utilised for such purposes as may becleter.mined by the Board after consultation with theMinister in charge of the subject of Finance.

Rules.


m.y;-forori;~dingposts indnancecompanies.

. 32. (1) A person shall be disqualified from ,behJappointed or elected as the case may be, as director, chiefexecutive or secretary of a finance company or from hold@such post if such person-

(a) has been declared insolvent by any court of law;

(b) has been convicted in any court of law for an offeuccinvolving moral turpitude ;

(c) has been convicted for any offence under this Act orthe Compinies Act, No. 17 of 1982 ;

4(d) is a person against whom action has been taken by

‘the Monetary Board under section 18 or 25, of this,Act.

(2) Any person who acts as a director, chief executivecr secretary of a finance clompany while being under anydisqualification set out in subsection (l), shall be guilty ofan offence under this Act.

33. (1) The Board may. m,ake rules on any matter inrespect of which ‘rules are authorized to be made underthis Act- or which is stated or required to be prescribed.

(2) In particular. and without prejudice to the generalityof ‘the powers conferred by subsection (1)) the Board maymake rules in respect of all or any of the follotvingmatters : -

(a) registration of finance companies and the annuallicence fees payable to the Board by finance com-panies regi,stered under this Act ;

(b) the forms tp be used under this Act ;

(c) the regulation or prohibition of the issue by anyperson or body of per?ons of any prspectus oracrvertisement soliciting the deposit of mones fromtJle public and the condit$ons, subject to whichany such prospectus or advertisement may beissued,

Directions 34. The Minister may give to the Board general orspecial directions in writing for the purpose of giving effectto the principles and provisons of this Act and the Boardshall give effect to such directions.


35. (1) Any person who, being a director, chiefexecutive, manager, officer or employee or audit or of afinance company-

Offences :

(u) fails to take all reasonable steps to secure compli-ance by tha.t finance company with the requirements:of this Act ; or

(b) fails to comply with any direction issued by the Boardunder the provisions of this Act ;

(c) fails to take all reasonable steps to secure thecorrectness of any statement submitted by suchfinance company under the provisions of this Act ;

(d) wilfully makes a false entry, or causes such an entryto be made, in any book or record or in any report,slip, document, or statement relating to be businessafTairs, transactions, conditions, assets or liabilitiesor accounts ,of such finance company, or wilfullycauses any such entry to be omitted ; or

.(e) wilfully o-mits to make an entry in any book or recordor in any report, slip, document or statementrciating to the business, affairs, transactions, condi-tions, assets or liabilities or accounts of such financecom;3any or wilfully causes such entry to beomitted ; or

(f) wilfully alters, abstracts, conceals or erases any entryin any book or record or in any report, slip, docu-ment, or statement relating to the business, affairs,transactions, conditions, assets or liabilities oraccounts of such finance company or wilfully causesany such entry to be erased, abstracted, concealedor destroyed shall be guilty of an offence under tliisAct.

(2) In any prosecution ,instituted against a person undersubsection (1)) it shall be a defence to prove t.hat he had

/ reasonable grounds to believe that another person was‘, charged with the duty of securing compliance tyith the

requirements 0% this Act or with the duty of ensuring thatthe statements in quesion were accurate and that suchperson was competent and in a position to discharge thatduty.

IpliCliCip

of pers~scontraven-ing theprovisionsof this Act.

: Penalties.

,i


36. (I) Any person or body of persons who contravenesor fails to comply with any provisions of tMs Act or anyrule, direction, order or requirement made or imposedthereunder or burnishes false information when required iunder ang provision of this Act, to furnish information,shall be guilty of an offence under this Act.

(2) In ttle case of any offence under this Act committedby a body of persons-

(a) where such body of persons is a body corporate, everydirector, manager, or secretary of that bodyczporate ; and

(b) where such body of persons is an unincorporate body,ex/eIy individual who is a member of such body, , j

shall be guilty of such offence :

Provided however that no such person shall be deemed ,to be guiiby of an offence if he proves that ithe offence wascommitted without his knowledge and that he exercised alldue diligence to prevent the commission of that offence. ,

37. The Monetary Board may in the public interest,where ar,y person or body of pel’sons carries on financebusiness in contravention of the provisions of section 2, and:lotwithstanding that any action has been,‘or is to be, takenunder the provisions of any mother section of thi.; Act, inrespect of such contravention, publicise by any meanswhatsoever-

0a in the case of a company or an incol’porated body ofpersons, the name of such company ; and the ‘namesof its directors or the name of such incorporatebcdy, the names of the directors of such incorporatedbody, as the case may be ; and

(b) in the case of a person or unincorporated body of

persons, the name of such person or members ofsuch unincorporated body of persons as the casemay be.

38. Every person who is guilty of an off’ence under thisAct shall be liable on conviction after trial before aMagistrate’s Court to imprisonment of either descriptionfor a term not exceeditig three years or to a fine notexceeding one million rupees.

Finance Cornpan~es Act, No. 78 of 1988 3 1

39. Ofricers of the Central Bank of Sri Lanka shall be officer ofdeemed to be public officers, within the meaning of section136 of the Code of Criminal Procedure Act No. 15 of 1979

g$TpLSriLanlra

for the purpose of nrstituting proceedings in respect of ttegdoffences under this Act. public

officers.48. (1) The Director may, having regard to the Compound- z

circumstances in which an offence under this Act was ing ofcomm;I.?.ed and with the approval of the Board, compound offences.

such offence for a sum not exceeding one hundred thousandrupees.

(2) The compounding of any offence under this section-

(u) shall be notified in writing under the signatureof both parties to the Court having jurisdic-tion over the offence ; and

(b) shall have the effect of an acquittal of theaccused.

41. (1) Where the Board is satisfied that any finance t~~~$a-campany has- licence oi

finance(a) falled to commence business within nine months of companies.

the issue of the licence ; or

^ (b) failed to pay up any ,debts incurred by it, on suchdebts becoming due; or

(c) where a petition or action for relief has been file;!against it, had appointed in respect of it, under artybankruptcy law or any other law which providbsfor relief of debtors or which relates to debtors, acustodian or receiver ; or d

(d) ceased to carry on France business ; or

(e) continuously violates: or contravenes the provisions ofthe Act or any directions issued thereunder ; or

(f) fails to pay the annual licence fee,

the Bond may, give notice that it would cancel the licenceissued to such finance company and shall communicatesuch n&ice to the finance company.

(2) A financial company may tender objections in writingto the Board against the notice of cancellation under sub-section (1)) within thirty days of the date of receipt of suchnotice, giving reasons why the licence issued to it undersection 7 should not be so cancelled.

32 Fhance Companies Act, No. 78 of 1988

(3) After the expiration of sixty days from the date ofnotif!ication of the cancellation and after considering theobjections tendered to the Board under subsection (2), theFoard may withdraw such notice or cancel the licenceissued to the finance company, and shall notify the financecompany accordingly.

(4) A cancellation of a licence under subsection (3)) shalltake e!‘fect-

(a) where no application is made to the Supreme Courtagainst the cancellation, after. the period forpreferring such application has expired ; or

(b) where an application is made to the Supreme Court,‘after the cancellation is’ upheld by the Supreme

1

Court,

and notjfication of such cancellation shall be published inthe Gazette.

(5) iTthere the licence of a finance company is socanceileo the Board shall remove the name of the financecompany from the register maintained under section 6 andmay issue such directions as it considers necessary, includingdiredions for winding up or require the Director to applyfor wjnding up of the company in which event the provi-sions of secticn 18 shall apply.

.(6) Where the finance company fails to comply with the

provisions of subsection (5) within thirty days of the issue,the Board may require the Director to 6le action for thewinding up of the finance company, and the provisions ofsection 18 shall apply to such winding up.

Delegation. ’42. Subject .to and in accordance with such rules, if any,as may be made by the Board in that behalf, the Board mayin writing delegate to any officer of the Central Bank ofSri Lanka its authority to represent the Board for any ofthe purposes of this Act, so however, that the Board shallremain and continue to remain to be responsible for anyact or thing done or omitted to be done by such officer.

Provisionfor appealsf romcertainorders.

43. (1) No person sggreived by an order made orpurported to have been made under section 2 ‘or sectionIO (2) or section 11(2) or section 18(4) (b) or section 26or section 24 or section 25 or section 26 or section 41 or whoapprehends that he would be affected by any act or anistep taken, or proposed to be taken under or purporting to


be taken under: any such section shall be entitled to apermanent or interim injunction, an enjoining order, a stayorder or any other order having thz effect of staying,restraining, or impeding the Board from giving effect tosuch order.

(2) (a) The jurisriction conferred. on the Court of Ap-peal by Article 140 of the Constitution shall in relation toany order or purported order under section 2 or section 10(2) or section ll(2) or section 18(4) (b) or section 20 orsection 24 or section 25 or section 26 or section 41, be exerci-sed by the Supreme Court and not by the Court of Appeal.

(b) Every application invoking the jurisdiction referredto in paragraph (a) shall be made within one month of thedate of commission of the act in respect of which or in re-lation to which, such application is made and the SupremeCourt shall hear and finally dispose of such applicationwithin two months of the- filing of such application.

(3) Nothing contained in subsection (1) shall effect thepowers which the Supreme Court may otherwise lawfullyexercise in respect of any application made under Article126 of the Constitution or in the exercise of the jurisdictionreferred to in subsection (2).

(4) The Supreme Court shall before making any orderwhether interim or final against the Board, in the exerciseof the jurisdiction conferred on it by this section affordthe Board an apportunity df being heard.

44. No suit or prosecution shall lie against any member protectionof the Monetary Board or any officer or servant of the Cen-tral Bank of Sri Lanka for any act which is in good faith

zr

done or purported to be done, or omitted to be done, by himunder this Act,

45. (1) The Control of Finance Companies Act, NO. 27 Repeal andof 1979, is hereby repealed. transitional

provisions,(2) Notwithstanding the repeal of the Control of Finance

Companies Ad, No. 27 of 1979 every notice, order, rule ordirection issued, requirement imposed rule or delegationmade under the repealed Act and in force on the day pre-ceding the date of commencement of this Act shall in sofar as such notice, order, direction, requirement, rule or dele-gation is not inconsistent with the provisions of this Act,


be deemed to be a notice, order, direction, requirements, ruleor delegation issued imposed or made as the case may beunder the corresponding provisions of this Act.

(3) Any action taken, order made or direction givenunder the Control of Finance Companies Act, No. 27 of 1979read with the Control of Finance Companies regulationsmade under the Public Security Ordinance during theperiod commencing on June 16, 1988 and ending on thedate of commencement of this Act shall be valid and effec-tual as if the Public Security Ordinance had authorizedthe making of those regulations.

(4) No civil or criminal Proceedings shall be instituted ::or maintained or continued against the Board or any officer,servant or agent of the Board or any other person or authn-rity for any act bona fide, done or omitted to be done by

. him during the period commencing on June 16, 1988 andending on the date of commencement of this Act, in pur-suance or supposed pursuance of the provisions of the C:n-trol of Finance Companies Act, No. 27 of 1979, read withthe Control of Finance Companies regulations made underthe Public Security Ordinance.

Interpreta-tion

46. Jn this Act unless the context otherwise requires-

“ Board ” means the Monetary Board of the CentralBank of Sri Lanka established under the MonetaryLaw Act, (Chapter 422) ;

“ Capital ” means the paid up capital of any company ;

“ capital funds ” in relation to a finance company meanspaid up capital and permanent free reserves andincludes, if so determined by the Board, the facevalue of unsecured debentures and other loanbonds, ‘which in the event of the winding up of afinance company or the return or reduction of capi-tal shall rank after and be subordinated to depositsand other borrowings of the France company ;

‘I commercial bank” has the, same meaning as in the

Monetary Law Act, (Chapter 422) ;

“ Director ” means the head of,” the department of the

Central Bank of Sri Lanka to which the subject offinan:.? companies has been assigned ;


“ finance business ” means the business of acceptance ofmoney by way of deposit the payment of interestthereon and-

(a) the lending of money on interest ; or

(b) th.e investment of money in any manner what-soever ; or

(c) the lending of money on interest and the in-vestment of money i’n any manner whatsoever ;

“ finance company ” means a company as defined in theCompanies Act, No. 17 of 1982 registered under thisAct for carrying on finance business ;

‘I hire purchase agreement ” means an agreement for theletting of goods with an option to purchase (whe-ther the agreement describes the weekly fortnightlyor monthly payments as rentals, instalments, hireor otherwise) but does not include any agreementwhereby property in the goods comprised thereinpasses at the time of the agreement or upon or atany time before delivery of the goods ;

“hirer ” means a person to whom the goods are let, hiredor agreed to be sold under a hire purchase agree-ment and includes a person to whom the rights orliabilities of the hirer under such agreement havepassed by assignment or .by operation of law ;

i “ holding company ” and “ Subsidiary Company ” havethe respective meanings assigned to them in section150 of the Companies Act, No. 17 of 1982 ;

“ liquid assets ” means-(a) cash in hand ;

(b) balances in a current or deposit account in acommercial bank, fee from any bankers lienor charge ;

(c) Sri Lanka Government Treasury Bills freefrom any charge or lien ;

(d) Sri Lanka Government Securities maturingwithin one year and free from any charge orlien ;

36 Finance CornpaGes ,4ct, No. 78 of 1988

‘(e) Central Bank of Sri Lanka securities ,maturingwithin one year and free from any charge orlien ;

(f) cash balance if any maintained with the Cen-tral Bank of Sri Lanka‘;

“loan.” includes any advance or the deferment of pay.ment on any sale or the deferment or payment ina transaction relating to hire purchase agreemenlor the payment agreements in any leasing transaction ;

“ prescribed ” means prescribed by rules made undethis ‘Act ;

“ relative ” in relation to an individual means the spou51or dependent child of such individual ;

I‘ substantial intere.st “-

(i j in relation to a company means the holding-oa beneficial interest by another company or Ian individual or his relative whether singlyor taken together, in the shares thereof thepaid up value of which exceeds one millionrupees or ten per centum of the paid up capi-tal of the company, whichever is less or theexistence of guarantee or indemnity given byan individual or his relative or by another.company on behalf of such company ;

(ii) in ,relation to a firm means the holding of abeneficial interest in the capital thereof byan individual or his relative which singly ortake together represents more than ten pt?rcentum of the total capital subscribed by allpartners of that firm or the existence OX aguarantee or indemnity given by an indioi-dual or his or her spouse or parent or childon behalf of such firm and ;

“ unimpaired capital ” means capital on which there isno lien or other charge.

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FINANCE COMPANIES Act, No. 78 of 1988 - IMOLIN · Finance Companies Act, No. 78 of 1988 3 4. (1) A...

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