Everest Industrial Lanka ruling shows minority remedies no lever for buyouts: top legal expert

Minority shareholders can take oppression and mismanagement claims to the Commercial High Court despite arbitration clauses, but these remedies cannot be wielded to force majority owners into surrendering control or agreeing to buyouts, as the court’s recent dismissal of a shareholder action against Everest Industrial Lanka illustrates, a top corporate legal expert cautioned.

Sudath Perera Associates Partner and Head of Corporate and Commercial Law Dushyantha Perera noted that sections 224 and 225 of the Companies Act No. 7 of 2007 provide statutory remedies against oppression and mismanagement, subject to qualifying shareholding or voting thresholds, with the court holding wide discretion to make orders it considers just and equitable.

“These are important minority protection mechanisms,” he observed, adding that the rights exist independently of shareholders’ agreements and other contractual arrangements, including exclusive arbitration clauses, which cannot oust the court’s statutory jurisdiction.

“This potentially gives aggrieved shareholders a choice of forum in Sri Lanka,” Perera pointed out, contrasting the local position with that in the UK, Australia and Singapore, where courts may stay similar proceedings in favour of an arbitration agreement. The distinction matters for investors structuring Sri Lankan joint ventures around exclusive arbitration clauses.

However, Perera stressed that these rights are “not tools for achieving collateral objectives, such as pressuring majority shareholders or the company to surrender management control or agree to extra-contractual buyouts or exits.” As the remedies are discretionary and equitable, he argued, a claimant’s conduct and good faith matter, and allegations unsupported by the facts or proceedings brought for improper purposes can weaken the claim.

Perera, whose firm acted for the company, its UAE parent Everest International Holdings and its directors in the litigation and the preceding corporate restructuring, said the October 2 ruling in Suduwadewage Upulsiri Fernando and Cellcity (Private) Limited v Everest Industrial Lanka (Pvt) Ltd illustrated the importance of the parties’ actual conduct and the limits of using these remedies to exert pressure where claims are factually unsupported.

Everest Industrial Lanka is a Katunayake Export Processing Zone-based visi-cooler maker in which India’s Varun Beverages, one of PepsiCo’s largest bottlers, agreed in May 2025 to acquire a 50 percent stake for US$ 3.75 million, implying a valuation of around US$ 7.5 million.

In that case, High Court Judge Chamath Madanayake dismissed the minority shareholders’ application without costs, holding that relief under sections 224 and 225 is granted only on equitable considerations and credible material. The judge found the petitioners had been duly informed of company decisions and meetings but had not taken part in management, noting that Fernando had not signed the company’s annual returns since 2020.

“Mere dissatisfaction of the petitioners as to the decisions taken by the respondents cannot be construed as acts detrimental to the petitioners or as acts of oppression and mismanagement,” the order stated.

The court found the shareholders’ agreement the petitioners referred to had never been operative or followed by the company, and could not support their allegations. Loan repayments funded by the parent were held to have benefited the company by shifting it from a negative to a positive net asset value, while the capitalisation of related party loans was likewise found to be in its interest.

Meanwhile, Fernando’s removal as a director through a shareholder resolution signed by the parent, which held more than 85 percent of the votes, was found to have been made in terms of the Articles. Citing the Supreme Court’s July 2026 ruling in Mohamed Noordeen Hyder Ali v Hybro Industries (Pvt) Limited, the judge held that without proven oppressive conduct, such a removal could not be treated as part of a course of oppression.

The court did not go into the respondents’ arguments on delay and suppression of material facts.