The Commercial High Court of Colombo has upheld an interim order barring the five directors of Hela Clothing Ltd from travelling overseas, rejecting their argument that a court sitting in civil jurisdiction has no power to restrict a person’s movement, Daily FT reported on Thursday morning.
Judge Chamath Madanayake delivered the order on Tuesday (13). He held the restriction justified and within the Court’s powers, but varied it to let the directors travel abroad for predetermined periods with the Court’s prior permission, subject to any conditions it may impose.
The respondent directors are Panadura Liyanage Dilanka Jinadasa, Albert Rasakantha Rasaiah, Gayan Priyanka Gunawardana, Ranjith Sanath Perera Amaratunga and Aruna De Silva Muthumuni.
The directors told the court they were leaving the country
The curbs were among interim orders issued on 25 September, when President’s Counsel Shivan Coorey supported Commercial Bank of Ceylon PLC’s applications against Hela Clothing and Foundation Garments (Private) Ltd. Coorey told the Court the two companies and Hela Apparel Holdings shared common directors and a registered address.
The Court issued notice on the first to fifth respondent directors in both cases and granted interim orders — under prayers (f) to (i) in the Hela Clothing case and (g) to (i) in the Foundation Garments case — subject to the bank depositing Rs. 1 million as security. The travel restriction was issued under prayer (j), and the orders were directed to be communicated to the Registrar of Companies by email.
One line in the judgment explains the urgency: the directors had informed the Court that they would be leaving the country.
The jurisdictional question, answered against the company
The directors did not apply under Section 521 of the Companies Act to revoke the interim orders, though they reserved the right to do so. Their objection was confined to jurisdiction.
Their lawyers argued that only a court exercising criminal jurisdiction could impose travel restrictions, that such orders could be made only under the Immigration and Emigration Act, and that neither the Companies Act nor the sections the bank invoked provided for them. Sri Lankan courts, they submitted, had never imposed travel restrictions in civil cases — particularly in winding-up matters — and doing so would open the floodgates.
Judge Madanayake pointed to the Civil Procedure Code and to Sections 310 and 313 of the Companies Act, which allow a court to order the arrest of directors who ignore summons, and of contributories — those liable to contribute to a company’s assets — who are about to leave the country. An arrest order would serve little purpose, he reasoned, if the same court could not stop the person leaving. Section 521, which allows the court to make orders “as it thinks fit”, together with the Court’s inherent powers, was wide enough to cover such restrictions.
“In view of the above, I answer the first question against the company and hold that this court has jurisdiction to impose travel restrictions in appropriate circumstances,” he said.
He cited as persuasive authority the English Court of Appeal’s 1986 decision in Bayer AG v Winter, in which a defendant was restrained from leaving the jurisdiction until Mareva and Anton Piller orders — which freeze assets and permit the seizure of evidence — had been executed.
The company also argued the bank could not invoke these provisions because no winding-up order had been made and the petition had not even been published. The Judge accepted that for Section 374, which applies only after a winding-up order, but held that Sections 375(2) and 376 operate during the course of a winding up — which under Section 377(2) is deemed to begin when the petition is presented.
What the bank alleges
Commercial Bank applied under Sections 374, 375 and 376 of the Companies Act No. 7 of 2007, which deal with fraudulent conduct by those running a company and empower the court to inquire into directors who misapply or retain company money and order them to repay it. The bank is seeking to hold the directors personally liable for the sums owed to it.
The bank said it granted Hela Clothing facilities of up to $1 million, including pre-shipment loans, which fund an exporter’s costs before goods are shipped. The facilities were to finance export letters of credit and confirmed orders for raw material imports, on condition that export proceeds were routed through the bank. It extended a $3 million pre-shipment facility to Foundation Garments on the same terms, and each company guaranteed the other’s debts.
The bank alleges the directors fraudulently failed to repay the loans — though they did not dispute the liability — and failed to route export proceeds through the bank while concealing the exports. It further alleges that Hela Apparel Holdings PLC moved to sell some subsidiaries without creditor approval, and that the directors fraudulently appropriated $8 million received from Emerald Investments (Private) Ltd, a sum not disclosed in the winding-up petition.
The Court has made no finding on any of these allegations.
The $8 million was announced publicly in April
The $8 million figure is not new to the record. In April, Hela Apparel Holdings confirmed the divestment of its UK subsidiary Focus Brands Ltd for US$8 million to Mohomed Salim Suhurdeen and Mohamed Salihu Fazeldeen, the shareholders of Emerald Investments Ltd. Its wholly-owned Mauritius subsidiary, Hela Brands Ltd, sold its entire shareholding; the Share Sale and Purchase Agreement was signed on 14 April and shareholders had authorised the disposal at an Extraordinary General Meeting on 3 April. The transaction was disclosed to the Colombo Stock Exchange, and Emerald separately took over Hela’s Thihariya and Palapathwala factories.
The bank’s complaint is therefore not that the sum was secret in April, but that it was omitted from the winding-up petition filed in August. Those are two different disclosure obligations, and Daily FT’s account does not draw the distinction.
A timeline the filing does not assemble
Daily FT reports that the bank issued its demand on 27 July, and that Jinadasa acknowledged it on 10 August, informing the bank of the planned winding-up applications.
Set against this desk’s earlier reporting, those dates sit awkwardly. Hela Apparel’s board resolved on 4 August to seek liquidation by court order, and the petitions were filed before the Commercial High Court on 5 August — disclosed to the Colombo Stock Exchange the following day. The bank’s demand therefore preceded the board resolution by eight days, and by 10 August, when Jinadasa described the winding-up applications as planned, they had already been lodged five days earlier.
Coorey also told the Court that Hela Apparel Holdings had given letters of comfort undertaking that the companies would not be liquidated. At the time of the filings the company said the decision to wind up was taken only after restructuring, debt restructuring and strategic investment options had each failed, been rejected, or been confirmed as no longer commercially viable.
Coorey argued that exporters are required by law to repatriate export proceeds, citing a Gazette dated 1 July 2024, and told the Court the case reflected a pattern of exporters taking assets out of the country using public money.
Other lenders are joining
Several other banks have intervened. DFCC Bank has filed a similar application, yet to be supported, and other banks intend to file under similar provisions, the order said. Counsel for HNB and NDB also made submissions.
The group’s collapse has been building for more than a year. The CSE warned in June that trading in Hela Apparel shares would be suspended unless it resolved a disclaimer of opinion from its external auditor. By the time of the winding-up filing, accumulated losses stood at Rs. 31.6 billion against total equity of negative Rs. 18.8 billion.
What the court declined to do
Judge Madanayake rejected the banks’ contention that travel restrictions should be imposed at the outset of civil proceedings to facilitate possible criminal action. He noted the bank had disclosed in its petition its intention to initiate criminal proceedings, and that investigators could obtain such restrictions from a competent court.
“The powers of this court cannot be extended towards such end,” he said. Any restriction is confined to ensuring the directors’ presence for examination and the production of books, accounts and information on the company’s affairs, assets, liabilities and investments.
Not reported
The order’s duration is not stated, nor what “predetermined periods” of permitted travel means in practice, or whether any director has yet applied to travel. The account does not say when the inquiry into the company’s affairs will be taken up, what the directors’ response to the substantive allegations is, or whether any criminal complaint has in fact been lodged by the bank or anyone else.
Nor is the total exposure given: the bank’s facilities are quantified at $1 million to Hela Clothing and $3 million to Foundation Garments, but the sums actually outstanding, and the combined claims of DFCC, HNB and NDB, are not reported. The number of employees still affected is not addressed. Whether Emerald Investments has any position in the proceedings, or any view on the characterisation of the $8 million it paid, is not reported.
This article is single-sourced. After a search of the verified newsrooms, no other had filed on the ruling at the time of writing; Daily FT’s court reporting has carried this case alone.
