Colombo, Sri Lanka – 02 September 2026 – In a significant ruling poised to influence corporate litigation in Sri Lanka, the Supreme Court today overturned a Commercial High Court decision, affirming that a cause of action alleging oppression and mismanagement in a company can survive the death of an alleged wrongdoer. The judgment, delivered in the case of Vijayavani Wijayawardena v. Cinemas (Private) Limited and Others (SC/APPEAL/229/2025), emphasizes the enduring nature of corporate misconduct allegations, particularly when they impact the ongoing affairs and control of a company.
A bench comprising Hon. Justice Mahinda Samayawardhena, Hon. Justice Dr. Sobhitha Rajakaruna, and Hon. Justice Sampath K.B. Wijeratne allowed the appeal, directing the Commercial High Court to substitute the 3rd Respondent in place of the deceased 2nd Respondent and proceed expeditiously with the main action. This decision provides crucial clarity on the application of the Civil Procedure Code in complex corporate disputes under the Companies Act, No. 7 of 2007.
Case Background: Allegations of Oppression and Mismanagement
The original action was instituted in the Commercial High Court on 24 November 2020 by Petitioner Vijayavani Wijayawardena and another shareholder against Cinemas (Private) Limited (1st Respondent) and ten other respondents. The petitioners alleged extensive oppression and mismanagement, including:
- Unlawful transfers of shares and consolidation of control by the deceased 2nd Respondent, Gunaratnam Rabindranath Pathmaraj.
- Unlawful appointment of the 3rd Respondent, Sanjayaraj Randheer Pathmaraj, as a Director without requisite qualifications.
- Unlawful issue and allotment of 100 shares to the 3rd Respondent and 147,000 shares to the 2nd Respondent, allegedly contravening Section 53 of the Companies Act and diluting existing shareholding.
- Repeal of existing Articles of Association and adoption of new ones at an Extraordinary General Meeting without proper notice or valid quorum, specifically to exclude statutory pre-emptive rights.
During the Commercial High Court proceedings, the 2nd, 4th, and 7th Respondents passed away. The Petitioners sought to substitute the 3rd Respondent, who had obtained limited letters of administration, for the deceased 2nd Respondent, citing Section 394 of the Civil Procedure Code.
Commercial High Court’s Initial Decision
The Commercial High Court, by an order dated 06 September 2024, dismissed the application for substitution. Its reasoning was primarily based on three grounds:
- The allegations against the deceased 2nd Respondent were personal, and therefore, under the maxim actio personalis moritur cum persona (a personal action dies with the person), the cause of action did not survive his death.
- Upon the 2nd Respondent’s death, the 147,000 shares devolved upon the 3rd Respondent by virtue of a nomination under Section 544 of the Civil Procedure Code, and thus did not form part of the deceased’s estate.
- Oppression and mismanagement, being personal to the alleged oppressor, ceased upon the death of the 2nd Respondent.
Supreme Court’s Reversal: Upholding Continuing Corporate Responsibility
The Supreme Court profoundly disagreed with the Commercial High Court’s reasoning. Hon. Justice Samayawardhena, writing for the bench, underscored that an application alleging oppression and mismanagement is not solely focused on the past conduct of an individual. Instead, “its focus is the continuing affairs of the Company.”
The Court held that where impugned acts continue to affect the ownership, control, governance, or affairs of the company, and the relief sought aims to remedy these continuing consequences, the cause of action may survive the death of the alleged wrongdoer. This is particularly relevant when challenging acts like the unlawful issue and allotment of shares, which have ongoing legal consequences.
The Supreme Court highlighted the broad remedial jurisdiction conferred upon courts by Sections 224, 225, and 228 of the Companies Act. These sections empower the Court to make orders it “thinks fit” and those that are “just and equitable in all the circumstances of the case” to remedy or prevent corporate misconduct. The Court stressed that this jurisdiction is not merely about adjudicating past wrongs but addressing continuing prejudice to the company and its shareholders.
Addressing the argument concerning Section 544 of the Civil Procedure Code, the Supreme Court unequivocally stated that a nomination under this section does not validate a defective title. If the 147,000 shares were unlawfully allotted to the 2nd Respondent, he acquired no valid title capable of passing to a nominee. The legal maxim nemo dat quod non habet (no one can give what they do not have) applies, preventing a nominee from acquiring a better title than the nominator. To hold otherwise, the Court noted, would produce “manifestly unjust results” by allowing illegality to be cured through nomination.
The Court further referenced English authorities like O’Neill v. Phillips and McCallum-Toppin v. McCallum-Toppin, which affirm that the jurisdiction concerns the company’s affairs and appropriate relief for continuing matters. While distinguishing Jayawardena v. Obeysekera, the Supreme Court clarified that an application under the Companies Act does not automatically cease upon the death of a party, especially when the inquiry is directed at the “continuing affairs of the Company and the continuing consequences of the impugned conduct.”
The Supreme Court concluded that both requirements for substitution under Section 394(2) of the Civil Procedure Code – that substitution is necessary and the cause of action survives – were satisfied. The 3rd Respondent, having obtained limited letters of administration, was deemed the proper person for substitution.
A Stance on Corporate Neutrality: Secretary and Auditors Cautioned
In a notable observation, the Supreme Court also expressed concern over the conduct of the 10th Respondent (Company Secretary) and the 11th Respondent (Company’s Auditors), who “vigorously opposed the application for substitution on substantially the same grounds as the 1st and 3rd Respondents.”
The Court stated that such opposition was “unwarranted.” As statutory officers, the Company Secretary and Auditors “are neither directors nor shareholders” and should ordinarily maintain a position of neutrality in disputes between shareholders. Their proper role is to assist the Court by producing records and discharging duties impartially, not to align with competing factions unless the Company’s interests explicitly demand it. This observation serves as a strong reminder regarding professional conduct in corporate governance.
Implications for Corporate Litigation in Sri Lanka
This landmark judgment reinforces the robust framework of the Companies Act in protecting minority shareholders and ensuring corporate accountability. It establishes a significant precedent that the death of an alleged wrongdoer does not automatically terminate proceedings concerning ongoing corporate misconduct, especially when the consequences of such acts continue to impact the company’s structure and operations. It also clarifies the limitations of Section 544 of the Civil Procedure Code, preventing it from being used to legitimize unlawfully acquired assets.
The decision paves the way for the Commercial High Court to fully hear the substantive allegations of oppression and mismanagement, ensuring that justice is pursued in complex corporate disputes that have long-lasting effects.
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