SC judgment on MR, GR, BR, PB and Cabraal

By C. A. Chandraprema

The judgement delivered by a divided five-member bench of the Supreme Court with regard to two fundamental rights cases numbered 195/2022 and 212/2022 filed by several individuals including Mahim Mendis, Chandra Jayaratne, Julian Bolling and the NGO Transparency International has stirred up a political storm. The majority judgment was delivered by Chief Justice Jayantha Jayasuriya, and Justices Buwaneka Aluwihare, Vijith Malalgoda, and Murdu Fernando while Justice Priyantha Jayawardene dissented.

Some of the headlines by which the local English language media carried on the judgement were as follows. I have left out the names of the media outlets concerned.

“Supreme Court finds Rajapaksa brothers guilty over economic crisis”

“Gotabaya Mahinda Basil & others responsible for economic crisis – SC rules”

“Econ. crisis perpetrators: SC majority finds Gota, MR, Basil et al. responsible”

“Supreme Court finds Rajapaksa brothers responsible for economic crisis”

Of all the English language news outlets that I checked, only Reuters got the nuances of the SC judgement right. The Reuters headline said “Sri Lanka’s top court says ex-president among those who contributed to economic crisis”. Even in the body of the Reuters news item on the judgement, they have been careful in reporting on what the petitioners claimed and what the Supreme Court said. However due to the manner in which the majority of the media outlets reported on the judgement, politically interested parties have gone overboard in paroxysms of hatred and triumph. In the aftemath of the SC judgement, there have been calls for the deprivation of civic rights of those named in the judgement, there have been calls to claim compensation from the Rajapaksa brothers and even calls for the dissolution of the Sri Lanka Podujana Peramuna (SLPP).

It is quite clear that those who have been making such calls have not read the 119-page-long majority judgement or the 127-page-long dissenting judgement pertaining to this case. The majority judgement never used the word ‘responsible’. What it stated was that certain named individuals namely, Mahinda Rajapaksa, Basil Rajapaksa, Nivard Cabraal, W. D. Lakshman, S. R. Attygalle, Samantha Kumarasinghe, Gotabaya Rajapaksa, P. B. Jayasundra and the Monetary Board collectively had by their “actions, omissions, decisions and conduct hereinbefore identified to have demonstrably contributed to the economic crisis …”

Scope of judgment

There is a significant difference between saying that someone is ‘responsible’ for a certain situation and saying that someone has ‘demonstrably contributed’ towards a situation. It is obviously this nuance that motivated the majority of the bench to state, “We are of the view that it would not be appropriate to order the respondents to pay compensation to the petitioners and as such we are not inclined to order compensation. We order however that each petitioner in both applications would be entitled to costs in sum of rupees 150,000.00 each.” The parameters within which the majority judgment had been given were stated as follows (quoted verbatim):

·        “When we considered these two applications, the main focus was on the economic situation of the country between November 2019 and April 2022”.

·       “Many of the respondents argued that the root causes for this debacle spread well beyond this time period and therefore no responsibility could be attributed to these respondents in the manner alleged by the petitioners. They claimed that heavy borrowings of previous Governments and the mismanagement of such funds had a direct impact on the debt sustainability of the country. While we take note of this argument, in considering the responsibility of the respondents, our attention was drawn to the issue as to whether the conduct of the respondents during the relevant period directly contributed to the economic crisis”.

·        “In deciding this issue, we are of the view that the respondents ought to have known the factual situation that prevailed when they assumed public office and they should have fashioned their acts and efforts to ensure that the situation is not further aggravated but resolved”.

·        “It is common ground that the country’s economy deteriorated not overnight but over a period of time under consideration in the matters before us”.

The above-mentioned passages tell us something that we should not miss. Firstly, the majority of the bench agrees that the economy deteriorated not overnight but over a period of time. Secondly, that the respondents ought to have known the factual situation that prevailed when they assumed public office. Thirdly, the majority of the bench took note of the argument that the ‘root causes for this debacle spread well beyond’ the time period considered in the judgement  and that ‘heavy borrowings of previous governments and the mismanagement of such funds had a direct impact on the debt sustainability of the country’. Fourthly, that with regard to this case, ‘the main focus was on the economic situation of the country between November 2019 and April 2022’.

Furthermore, the body of the written judgement shows that in arriving at its conclusion, the SC has taken into account three key issues – the tax reductions in November 2019, the delay in allowing the Rupee to depreciate and the delay in seeking IMF assistance. In a nutshell, what the judgement said about each of these issues is as follows:

Tax reductions

“In November 2019, the new government of President Gotabaya Rajapaksa had reduced taxes. The Inland Revenue Department had estimated the potential loss from tax income resulting from the proposed tax for the year 2020 amounts to Rs. 493 billion. The loss of government revenue due to the measures referred to resulted in an unmanageable budget deficit …. Furthermore, a major adverse consequence that resulted directly from the tax revisions was lowering of the country’s credit rating by the international agencies ….The main impact of such downgrading was the loss of access to capital markets at reasonable costs which resulted in drying up foreign exchange inflows from such sources … the Gross Official Reserves which stood at USD 7,780.08 million as at 31st October 2019 had decreased to USD 5,555 million by November 2020. It had further depleted to USD 2,362 million in January 2022.  It is apparent that the continued inaction to reintroduce and/or to raise taxes and regain the government revenue that was lost, brought about an adverse impact on the economy….”

Seeking assistance from IMF

“This was not a straightforward case of assessing the suitability of seeking IMF assistance under normal circumstances but the call to seek IMF assistance was critically relevant given the unique circumstances our economy was placed in. The depleted official reserves; the need to secure foreign exchange on an urgent basis; the reluctance of the other agencies to extend support without an IMF programme were critical factors in deciding whether seeking assistance was in the best interest of the country at the relevant time …. According to the material available a decision to seek assistance from the IMF was ultimately taken by the President on 16th March 2022.”

“Comments and the conduct of the officials of the Central Bank over this period clearly point to the direction that the need to seek assistance from IMF did exist over a period of time and any prudent person who did not act arbitrarily would have foreseen the serious repercussions in the failure to act swiftly to remedy the situation …. Deputy Governor K. M. M. Siriwardane in his comments says that “the little experience I had in working with macroeconomic policy making enabled me to foresee well in advance the economic crisis that the country is experiencing at present. This is the exact reason for me to recommend and emphasize to the MB to approach IMF… The pain to the economy and the people of Sri Lanka would have been less if this decision was taken at least one year ago ….” All factors referred to above clearly establishes that the relevant state organs/officials demonstrated reluctance to reach out to the IMF in the face of the critical situation the country’s economy was facing in spite of the fact there was no other viable alternative.”

Depreciating rupee

“The Monetary Board as well as the Minister had failed to take correct decisions at the relevant time to float the rupee and thereby caused a loss to the Government ….”

“… During the period 2019 and 2021 (especially after March 2020) Sri Lankan economy experienced a drop in foreign remittances by Sri Lankan workers abroad due to the COVID-19 pandemic. There was a significant drop in Foreign Direct Investment and the inflow of foreign earnings from export markets too. As revealed before us, it appears that although the need was to retain the meagre remittances received and create a conducive environment to enhance the inflow, the Finance Ministry and the Central Bank worked towards maintaining the exchange rate at around Rs. 200…”

“… the exchange rate is expected to be an automatic adjuster under the flexible exchange rate regime, but if the exchange rate is to be maintained at a stable rate, then a depletion of reserves would take place as foreign exchange will have to be pumped to the market to meet the demand.”

“… a significant increase in the use of informal methods in transferring money such as Hawala/ Undial by Sri Lankan workers abroad was observed mainly due to the high exchange rates offered in the “Gray market” compared to the exchange rate maintained by the Central Bank ….”

During this period (April 2021 to 7 March 2022) “the Central Bank had sold USD 1,773.8 million and purchased USD 746.2 million from the Domestic Exchange Market, making a net sale of USD 1,027.6 million. This outflow of USD had led to further depletion of the reserves”.

“… a series of discussions had been held with a view to  permitting  the exchange  rate to be determined  by market forces, supply and demand of USD, but we note with  dismay that no positive steps were taken to implement a ‘moderate method’ to  protect the reserves and stem the  depletion when the need to do so was felt but waited till the 11th hour to take the decision to float the Sri Lanka Rupee …”

It is due to these three matters – the decision of the respondents to reduce the taxes, the delay in allowing the rupee to depreciate and the delay in seeking the assistance of the IMF that the majority of the bench held that the respondents had ‘demonstrably contributed’ to the economic crisis.

Tomorrow: The dissenting

judgment