Greece Bonds case against Central Bank:
Supreme Court dismisses Fundamental Rights application
The Supreme Court dismissed the Fundamental Rights application filed
by Sujeewa Arjune Senasinghe of Colombo 3 against the Monetary Board
complaining that the Central Bank, in purchasing Greece Government
Bonds, had acted in an unlawful, irresponsible and an arbitrary manner.
In its judgement, the Supreme Court said that the investment in
Greece Bonds and its trade formed a part of the risk management strategy
of the Central Bank and that if all investments were to be maintained as
risk free investments, the return would be negligible. The Central Bank,
therefore, had to select a mix of low risk and risk bearing investments,
expecting a reasonably high return.
The Court said: "We must not forget that in complex economic policy
matters, every decision is necessarily empiric and, therefore, its
validity cannot be tested on any rigid formula or strict consideration.
The Court while adjudicating the constitutional validity of the
decision of the Governor or International Operations Department
September 26, 2014 Members of the Monetary Board must grant a certain
measure of freedom considering the complexity of the economic
The Court cannot strike down a decision merely because it feels
another policy decision would have been fairer or wiser or more
scientific or logical. The Court is not expected to express its opinion
as to whether at a particular point of time or in a particular situation
any such decision should have been adopted or not. It is best left to
the discretion of the authority concerned."
The Court also acknowledged that the Central Bank's decision to
invest in such Bonds was based on the trade-off between different risks
faced and the Central Bank's tolerance for higher risk on a very small
part of its portfolio. (Only 0.6 percent of its portfolio was invested
in Greece Bonds).
In that regard, the Court said: "Investing in high yielding sovereign
paper is an integral part of fund management of many funds in the world
and the Central Bank too had followed a similar practice in investing a
tolerable proportion of its resources (0.6%) in Greece Government Bonds.
When the Euro Zone took a turn for the worse several weeks after the
investments were made, in mid July 2011, the Central Bank sold a part of
Greece Bonds at a loss of US$ 6.6 million.
This measure was taken to mitigate the risk of the Greece investment
losing further value due to subsequent development in the Euro Zone.
Such loss has been taken into consideration in computing the
profit/gains for the year 2011 amounting to US$ 430.2 million."
The Supreme Court Bench presided over by Justice K. Sripavan and
comprising Justice R Marasinghe, and Justice Sarath de Abrew,
unanimously concluded that; "Considering the totality of the
circumstances, it is neither possible nor desirable to hold that the
Members of the Monetary Board in taking a decision to invest in Greece
Bonds, have acted arbitrarily, unreasonably and in a fraudulent manner."
Upul Jayasuriya and S.H.A. Mohamed, Attorneys-at-Law, instructed by
Paul Ratnayake Associates appeared for the petitioner, while Sanjay
Rajaratnam, Deputy Solicitor General and Mrs S Barrie, Senior State
Counsel appeared for the Respondents.