Colombo, 02 September 2026 – In a significant ruling handed down today, the Supreme Court of Sri Lanka has allowed an appeal in the case of Vijayavani Gunaratnam v. Cinemas (Private) Limited and Others (SC/APPEAL/81/2025), overturning an order by the Commercial High Court that had dismissed applications for substitution and led to the abatement of a critical share register rectification action. The judgment, delivered by a bench comprising Hon. Justice Mahinda Samayawardhena, Hon. Justice Dr. Sobhitha Rajakaruna, and Hon. Justice Menaka Wijesundera, provides crucial clarity on the interpretation of the Companies Act and the Civil Procedure Code, particularly regarding the substitution of parties upon death.
Background to the Corporate Dispute
The original action was initiated in the Commercial High Court on 22 September 2020 by the late Mrs. Kamala Gunaratnam, then 96 years old, under section 128 of the Companies Act, No. 7 of 2007. Mrs. Gunaratnam, a director and shareholder of Cinemas (Private) Limited (the 1ˢᵗ Respondent), sought the rectification of the company’s Share Register.
Her case alleged fraudulent and unlawful transfers of two sets of shares to her son, Gunaratnam Rabindranath Pathmaraj (the 2ⁿᵈ Respondent, now deceased). The first set comprised 2,376 shares she held in her own right, which she claimed were transferred without her knowledge or intent. The second set involved 9,381 shares bequeathed to her by her late husband, Kanagasabai Gunaratnam, which she contended were transferred to her son before they had legally vested in her, as testamentary proceedings for her husband’s estate were still pending.
Furthermore, Mrs. Gunaratnam alleged that the 2ⁿᵈ to 5ᵗʰ Respondents had amended the company’s Articles of Association and issued further shares to her son and grandson (the 3ʳᵈ Respondent), Sanjayaraj Randheer Pathmaraj, in a manner oppressive to other shareholders and prejudicial to the company’s interests.
Commercial High Court’s Dismissal
During the pendency of the action, both the 2ⁿᵈ Respondent and the original Petitioner, Kamala Gunaratnam, passed away. Subsequently, Vijayavani Gunaratnam, daughter of the original Petitioner and executrix of her will, filed applications to be substituted as the Petitioner and for the 3ʳᵈ Respondent to be substituted for the deceased 2ⁿᵈ Respondent. However, on 28 August 2024, the Commercial High Court dismissed both applications, citing several grounds:
- The Appellant had not obtained probate at the time of making the applications.
- The original Petitioner’s action was a “personal action” based on an alleged criminal act (fraudulent share transfer) and therefore did not survive her death.
- The application to substitute the 3ʳᵈ Respondent was premature.
- The Appellant lacked standing to apply for substitution under section 394 of the Civil Procedure Code as she was not an original party to the action.
Supreme Court Overturns Lower Court’s Decision
The Supreme Court critically reviewed the Commercial High Court’s findings, allowing the appeal and setting aside the lower court’s order. The apex court unequivocally stated that the Commercial High Court’s finding that the action was “purely personal” and did not survive the Petitioner’s death was “clearly misconceived in law.” The Supreme Court underscored that an action under section 128 of the Companies Act, seeking rectification of a share register, fundamentally concerns proprietary rights and is inherently civil in character, thus surviving the death of the original litigant.
The Court also dismissed the notion that the application for the 3ʳᵈ Respondent’s substitution was premature, clarifying that there was no legal impediment to both substitution applications being filed simultaneously.
Navigating the ‘Drafting Anomaly’ and Inherent Jurisdiction
A significant portion of the judgment delved into the interpretation of the Civil Procedure Code (Amendment) Act, No. 8 of 2017, which had fundamentally restructured the law governing substitution upon the death of a party. The amendment introduced a mandatory requirement for parties to nominate legal representatives (section 393) and, crucially, redefined “legal representative” in section 395(2) to refer exclusively to such nominated persons.
The Court identified an “apparent drafting anomaly” where, in cases like the present one, an executrix or administrator who was not a nominated legal representative under the new definition, would seemingly lack the standing to apply for substitution under section 398. This interpretation, the Court noted, would lead to the abatement of actions despite surviving causes of action, particularly if the defendant chose not to invoke section 394.
To prevent such an “unjust and irrational result” and uphold the object of the 2017 amendment – which was to expedite, not impede, the continuation of proceedings – the Supreme Court invoked its inherent jurisdiction under section 839 of the Civil Procedure Code. The Court affirmed that where no memorandum of nomination has been filed by a sole plaintiff under section 393, and no other party invokes section 394, the executor, administrator, or next of kin of the deceased party may apply under section 394(1) to be substituted, provided the Court is satisfied that the appointment is necessary and the cause of action survives.
Justice Samayawardhena also suggested a parliamentary amendment to section 394 to explicitly address this procedural lacuna, proposing the insertion of a new subsection (1A) to formalize this pathway for substitution.
Implications for Corporate Governance and Litigation
The judgment also provided a brief but pointed observation regarding the conduct of the 5ᵗʰ Respondent, Secretarial Advisory Services (Private) Limited (the Company Secretary). The Court noted that a Company Secretary, performing statutory and administrative functions, is expected to maintain neutrality in disputes between shareholders and should not align with one faction against another by opposing substitution applications. This highlights the importance of maintaining proper corporate governance practices and neutrality in disputes.
The Supreme Court further emphasized the critical importance of strict compliance with the amendments introduced by the Civil Procedure Code (Amendment) Act, No. 8 of 2017. The filing of the memorandum of nomination, it reiterated, is a mandatory statutory requirement designed to minimize delay in civil litigation, a long-standing issue in Sri Lankan courts.
What Lies Ahead
With the appeal allowed, the Commercial High Court’s order of 28 August 2024 has been set aside. Both applications for substitution have been granted, and the Commercial High Court has been directed to proceed with the action expeditiously according to law. The Supreme Court clarified that its judgment does not express any view on the merits of the original allegations or the main application under section 128 of the Companies Act; these questions remain open for determination by the Commercial High Court.
This landmark ruling by the Supreme Court not only ensures the continuation of a significant corporate dispute but also provides vital interpretative guidance on the practical application of recent amendments to the Civil Procedure Code, reinforcing the principle that procedural rules must serve justice rather than obstruct it.
Source: Read original document