Rules and regulations meant to be followed
According to Section 10 of the Consumer Affairs Act No. 9 of 2003 it
is a requirement to price mark every consumer item. It is a moot point
whether this law is strictly enforced or followed. In reality, if you
look round it is not in every shop that the price of consumer items are
The traders little realise that by omitting price marks they are
committing an offence punishable under the Act which would result in a
substantial fine after a conviction by a Magistrateâ€™s Court. Now it has
become necessary to implement these Sections to the last word which
state as follows:
1. The Authority may, for the protection of the consumer.
a. issue general directions to manufacturers or traders in respect of
labelling, price marking, packeting, sale or manufacture of any goods;
b. issue special directions to any class of manufacturers or traders,
i. the times during which and the places at which, such goods may be
ii. any other conditions as to the manufacturing, importing,
marketing, storing, selling and stocking, of any goods
2. Every direction issued by the Authority under subsection (1) shall
be published in the Gazette and in at least one Sinhala, one Tamil and
one English newspaper.
3. Any manufacturer or trader who fails to comply with any direction
issued under subsection (1) shall be guilty of an offence under this
4. Any person who removes, alters, obliterates, erases or defaces any
label, description or price mark on any goods in respect of which a
direction under subsection (1) has been issued, or sells or offers for
sale any such goods from or on which the label, description or price
mark has been removed, altered, obliterated, erased or defaced, shall be
guilty of an offence under this Act.
1. Every trader shall exhibit conspicuously in his place of business,
a notice specifying the maximum retail or wholesale price, as the case
may be, of goods available for sale in his place of business other than
the price of any goods, the price of which is marked on the goods itself
or on the wrapper or pack containing it or marked in any other manner as
may be required by any law.
2. A complete list of the price of goods available for sale shall be
kept within the place of business at all times for inspection whenever
Last issue of the â€śConsumer Pageâ€ť, we pointed out that the prices of
vehicles are not exhibited in car sales centers and we have given notice
to the traders to comply with this rule.
There are other requirements which the traders are required to comply
with. This is dealt with under Section 29 of the CAA Act which is
1. Every trader shall keep in conspicuous place in his place of
business, a notice board for the display of any notice, direction or
warning issued by the Authority under this Act.
2. Every trader shall affix or cause to be affixed on such notice
board any notice, direction or warning issued to such trader by the
Authority under this Act.
3. Any person who removes, alters, obliterates, erases or defaces
such notice, direction or warning other than a person acting under the
direction or authority of the Authority, shall be guilty of an offence
under this Act.
We have received number of complaints of not exhibiting the prices at
all and also exhibiting it illegibly or in such a way that the consumers
are not given proper information.
This article serves as a reminder to all traders, manufacturers and
importers to comply with the above mentioned rules.
Please take notice that in due course our Investigation Officers will
continue to monitor the applicability of the above Sections of the Act
No. 9 of 2003 island wide.
Import inspection scheme
With the introduction of the free economy in 1977, imported goods
began to flood into the country. Many local manufacturers were
complaining about the poor quality of these imported products.
Eventually, the local manufacturers began to urge the government to
impose restrictions to curb the low quality imported products.
Subsequently, a steering committee had been appointed to look into the
matter and suggest ways and means in managing the situation.
As a result, the Import Inspection Scheme (II scheme) was launched in
1986 only for eleven designated products. The mechanism of the scheme
was to impose regulations by the Minister in charge of the Imports and
Exports (Control) Act and gazette those designated products making their
conformity mandatory to the relevant Sri Lanka Standard Specifications
when the products are imported to the country.
The implementation of this regulation was generally executed by the
Sri Lanka Customs in conjunction with the Sri Lanka Standards
Institution (SLSI). Once a consignment of a designated product arrives
at the port, it is referred to SLSI to determine the conformity to the
The result of the quality determination is reported back to the Sri
Lanka Customs and also to the Import and Export Control Department.
Accordingly, the release or detaining of goods would be executed.
The originally selected eleven products for this scheme were gazetted
under the provision of the Imports and Exports (Control) Act.
Subsequently, the list was increased time to time by adding more
products and at present 102 products are subjected to quality checks
under this Scheme. These products include a variety of items such as
food items, building materials, electrical appliances, cosmetics etc.
An importer, who brings a consignment of any product out of the 102
designated products, shall notify the SLSI before the consignment is
cleared from the port. For this purpose, the importer needs to furnish a
notification form (in triplicate) together with the supporting
documents. SLSI then has to determine the conformity of the consignment
against the relevant Sri Lanka Standard Specification.
Basically, the SLSI uses two optional methods to determine this
conformity. The first option is that the importer is allowed to proved
the conformity of the product to the relevant Sri Lanka Standard
This could be done by producing a conformity certificate or by
marking the products with a product certification mark.
However, when a conformity certificate is produced, it should be
obtained from an organization acceptable to SLSI.
This acceptance will depend on the capability of the organization (by
which the certificate had been issued) in carrying out tests according
to the relevant Sri Lanka Standard.
The SLSI has basically, identified two types of organizations for
this acceptance. Viz.1) Accredited laboratories which comply with the
SLSIâ€™s acceptance criteria for Laboratories, and 2) Manufacturers who
comply with the SLSIâ€™s acceptance criteria for manufacturers.
When a product certification mark is appearing on the product, the
certification mark should be either the SLS mark or a certification mark
given by the national standards body of the exporting country. Granting
the SLS Mark to an overseas product could be considered by SLSI if the
brand name owner makes such a request.
If the certification mark has been granted by the national standards
body of the exporting country, it should be compatible to the relevant
Sri Lanka Standard Specification.
Importers are encouraged to go for the above-mentioned first option
(i.e. importer providing proof for the conformity), as it eases the
approval process by limiting it to perusal of documentation or
certification mark, which enables quick release of consignments.
However, especially when repeated consignments are imported, whilst
giving the approval (when the product conforms to the relevant
standard), SLSI keeps the right to draw samples from selected
consignments on random basis to verify the authenticity of the
conformity certificate produced. In such situations consignment are
release immediately after drawing samples.
The importers who do not submit supporting documents (conformity
certificate) as described above will have to undergo the second option.
In this situation, having no proof for conformity to the relevant Sri
Lanka Standard, SLSI has to determine the conformity by carrying out
tests under its responsibility. For this purpose, SLSI officials will
draw samples from the consignment for testing.
Going for this option is not encouraged as it is time consuming as
the consignment are withheld till the laboratory tests are over and the
test results are available and conforming.
If the consignment did not conform to the relevant standard, the
consignment will not be released. If an importer is not satisfied with
the decision taken on any consignment, he could appeal to the Director
General of SLSI.
Details of the Import Inspection Scheme could obtain by visiting the
SLSIâ€™s web site www.slsi.lk
Some thoughts on implementation of Provisions of new Companies Act
No. 07 of 2007
The following is the keynote address delivered by Judge of the High
Court (Commercial High Court) K. T. Chithrasiri at the seminar/workshop
on â€śNew Companies Actâ€ť held at the Organisation of Professional
Associations Auditorium on June 20.
(Continued from last week)
6. Matters concerning the bonus issue
Sec.52 of the Act requires a company to decide the consideration for
which the shares are issued. This consideration may be in the form of
cash, promissory notes, etc.... Therefore on principle, no issue of
bonus shares can take place under the Act.
However if the company can receive consideration out of the existing
share premium account of from rest of the capital reserves the shares
could be issued to such an amount as bonus shares. This will avoid the
reduction of the wealth of the existing shareholders.
7. Serious loss of capital
In terms of Sec. 220 of the Act, the Board of Directors shall call
for an extra ordinary general meeting of share holders when it appears
to a Director that the net assets of a company are less than half of its
Such a meeting shall be held not later than 30 working days from the
date of calling such meeting. A meeting under this Section is summoned
to discuss the report prepared by the Directors under Sub Section 2 of
Section 220 and also the financial position of the company.
This will enable the shareholders to question, discuss and or comment
on any matter in relation to the said reports and also the general
management of the company. This again will cast a duty on the Directors
Therefore, this may lead to more litigation whenever the Directors do
not adhere to this requirements referred to in this Section 220 (2).
However, this step would protect the creditors to a greater extent.
8. Solvency test
In the present day context a company could obtain loans even if the
company does not have sufficient assets. This is possible with
furnishing personal guarantees. Therefore the creditors were faced with
many problems when recovering the loans given to the companies.
This scenario has caused many difficulties to the State banks in the
country. In the recent past, State owned Banks were unable to recover
very large amounts of loans that were outstanding.
The solvency test introduced in the new Act would assure the solvency
of a company. Sec. 56 (2) requires the Board of a company to satisfy the
solvency test and to obtain a certificate of solvency from the auditors
before any distribution is made. A company shall be deemed to have
satisfied the solvency test, if:-
(a) it is able to pay its debts as they become due in the normal
course of business; and
(b) the value of the companyâ€™s assets is greater than the value of
its liabilities and the companyâ€™s stated capital.
This system would ensure the stability of a company. The creditors
are also protected to a greater extent. However, this system may create
unhealthy atmosphere for service oriented businesses such as financial
institutions since they have relatively low assets although they are
Moreover, the hotel industry in this country may be liable to undergo
winding up proceedings as most of the hotels are now running with more
liabilities than the assets.
9. Reduction of capital
In terms of the provisions in the Act. No. 17 of 1982 sanction of
court was necessitated when a reduction of capital is made. This system
had been there specially to protect the shareholders and the creditors.
Therefore, such Sections gave the opportunity of making
representations to court when a reduction of capital is to be made. Sec.
59 of the new Act provides for the reeducation of stated capital by
However, several pre conditions have been imposed by S. 59 before a
reduction of stated capital is made. If those pre conditions are not
followed or adhered to, it is regarded as an offence. Therefore this
novel procedure of reducing the capital may not harm the creditors and
the shareholders although the sanction of court in this regard has been
10. Purchase of shares by the company itself
Generally, the purchase of shares by the company is prohibited. This
is because the price of a bundle of shares is transmitted to its owners
without considering the rights of the other shareholders and the
creditors. However, this system may lead to a disturbance of the
majority rule which is essential to run a business smoothly.
Therefore, buying back of shares by the company may become necessary
to have a healthy system. All this time, the rules laid down by Courts
have been followed when buying back the shares of a company. Therefore,
the manner of buy back of shares, introduced by the Act is commendable.
11. Redemption of shares
Redemptin of shares is referred to in the Sections 66 to 69 of the
Act. Option to redeem shares could either be done at the option of the
company or of the holder of shares provided the Articles of the company
permit for the same.
There is no necessity to meet the solvency test if the redemption of
shares is at the option of the holder or if redemption is required on a
fixed date by the Articles. However this could be done only after
obtaining a certificate by the auditors.
If the redemption is at the option of the company the resolution to
redeem the shares must be signed by the Directors ensuring that the
company will be able to meet the solvency test after the redemption.
This process will have to be exercised carefully since the capital and
the number of shares is to be reduced by this process.
12. Abolition of Ultra Vires doctrine
Even though many other countries have done away with the defence of
ultra vires, this feature is introduced into our statute only by the new
Act. Even in the recent past the legal fraternity took up the objection
that the contracts entered into outside the objects of the company are
invalid in law.
Therefore third parties who entered into the contracts with the
company without the proper knowledge of the objects of that company
faced with many problems up to now. However this doubt has been now
cleared with the introduction of Sec. 13. of the Act.
13. Directors duties
Until the new Act came into operation common law principles were
applied when defining the duties of the Directors. They were commonly
known as fiduciary duties and duties of skill and care.
These principles are now brought into the statute book S. 187
stipulates that a Director shall act in good faith and to the best
interest of the company. Standard of care of the Directors is described
in the S. 189 of the Act.
Accordingly Directors shall not act in a manner which is reckless or
grossly negligent and shall exercise the degree of skill and care that
may reasonably be expected of a person of his knowledge and experience.
Identifying these duties of the Directors may compel the Directors to
act accordingly. Therefore this may become a ground for the shareholders
to file action on behalf of the company to ensure its proper management
of the company.
14. Recognition of filing derivative action on behalf of the company
As I have explained in the preceding paragraph the shareholders could
file action to ensure the proper management of the company. Generally
the majority shareholders are capable of managing the company according
to their wish.
This may lead to improper management of the company and no person
would be in a position to overcome the majority rule even if the
decisions are not for the betterment of the company. In such a situation
a minority shareholder could file a derivative action by resorting to
Section 234 of the new Act.
This principle has always been accepted by the decision pronounced by
the Supreme Court in the Hilton hotel case although there are no other
actions have been filed in this manner.
15. Dividends and its distributions
Dividends are the distributions out of the profits of a company other
than on an acquisition of its own shares or redemption of shares.
(Sec.60) A distribution includes a payment of a dividend, purchase or
redemption of shares.
All the distributions must be authorized by the Board and should be
approved by the shareholders at an ordinary meeting. Decision for
distribution could be made provided the company meets with the solvency
test immediately following the distribution. Therefore, heavy
responsibility is cast upon the Directors when making the decision for
(To be continued next week
Complaints received and settlements reached
A resident of Kollupitiya had placed an order to make three doors
based on a quotation of Rs. 48,000. The full amount was paid to the
firm. However, it did not deliver all three doors, but only one was
delivered, that too was not in an acceptable manner.
The resident gave an ultimatum to the firm stating that the job must
be completed within two weeks or else to refund the sum already paid.
After a lapse of two weeks, the resident made a complaint to the CAA
and when the case was taken up it was made known that the matter was
settled amicably among themselves.
Thereafter a letter from the resident was received by the CAA, in
which he had stated that the job was by that time, completed. He also
thanked the CAA for having taken prompt action to grant him redress.
A mobile phone was handed over to a Communications Centre for
repairs. The communication centre having repaired the phone charged Rs.
2,500 for repairs although it was under the warranty at the time of
repairs. This was brought to the notice of the CAA. When the CAA
intervened in the matter, the owner of the Communication Centre agreed
to refund the sum of Rs. 2,500 and the matter was settled.
A consumer purchased a mobile phone in Kandy by paying Rs. 5,200. The
owner of the shop did not give him a guarantee card. When the phone was
found to be out of order, it was given to the owner of the shop for
repairs. He demanded the cost of repair before returning the phone.
This was complained to the CAA. Having intervened in this matter, the
CAA saw to it that the owner of the shop returned the phone to the
complainant together with a sum of Rs. 2,500.
A payment of Rs. 880 was made, on behalf of a patient, at a medical
centre at Maharagama to obtain a medical report. Since there was a delay
in conducting the medical examination, a refund was called for, which
the medical centre authorities did not agree.
This matter was complained to the CAA. After a lengthy discussion, it
was agreed by the representatives of the medical centre to refund the
sum of Rs. 880. The complainant has informed the CAA that he has
received the cheque for that amount.
Powers vested in Consumer Affairs Authority to regulate trade - Part
The powers envisaged by Sections 10, 11, 12, 13 & 32 were discussed
in the previous articles and today, the review is on the provisions made
in Section 14 of the CAA Act.
Powers envisaged by Section 14
As per the provisions in Section 14, the Authority can enter into
written agreements with the manufacturers or traders or with association
of manufacturers or traders on the following:-
(1) The maximum price of a product
(2) The standards and specifications of any goods manufactured, sold
or referred for sale
(3) Any other condition on manufacture, import, supply, storage,
distribution, transportation, marketing, labelling or sale of any goods.
Recently the Consumer Affairs Authority entered into an agreement
with the Essential Food Commodities Importers and Traders Association on
the maximum wholesale price of selected items as white sugar, big
onions, red onions, potatoes, dried chilies, sprats, green moong, chick
peas, canned fish and dhal.
The commodities of which the maximum wholesale prices have been fixed
must confirm to the standards and be of good marketable quality. It is
the responsible of the Association make available the essential food
items in the open market without any restriction/conditions and without
any shortage during the specified period.
Also the Association agrees to sell the commodities at the agreed
wholesale price irrespective of any unforeseen happenings, disasters,
price fluctuations in the world market. These prices are fixed for a 30
day period and the agreement is renewed every month with the wholesale
prices for the coming 30 days.
The Consumer Affairs Authority signed another agreement with the All
Island Poultry Association on the maximum price of dressed broiler
chicken meat sold in the market.
When an agreement is signed by the Authority and any manufacturer or
trader or with an association of manufacturers or traders, this
agreement is binding on every authorized distributor of such
manufacturer or trader and every member of the association even though
he was not a member at the time of entering into the agreement.
Every agreement must be registered with the Authority and must
contain a schedule with the names and description of each authorized
distributor of manufacturers, traders or members of associations.
Any person who acts in contravention is liable to a fine not less
than Rs. 1000 and not exceeding Rs. 10000 or to an imprisonment for a
term not exceeding 6 months where such person is not a body Corporate.
Where such person is body Corporate, is liable to a fine not less than
Rs. 10000 and not exceeding Rs. 100,000 for a first offence.
Director Consumer Affairs and Information
Fines imposed on traders
There have been 57 cases filed in Magistrate Courts in several parts
of the country recently as a result of the raids carried out by a team
of Investigation officers attached to the Consumer Affairs and
Information Division of the CAA. Fines, amounting to Rs. 628,500 were
imposed on the violators.
These cases were taken up at the Magistrateâ€™s Courts in Attanagalla,
Maligakanda, Hinguragoda, Anuradhapura, Homagama, Gangodawila, Dambulla,
Matara Baddegama and Nawalapitiya. During these raids focusing was made
on essential food items.
The details of the fines imposed are as follows.
Sales Centre Amount of fine
A Super Market at Maharagama Rs. 150,000
A Super Market at Anuradhapura Rs. 50,000
A Super market at Homagama Rs. 40,000
Anuradhapura, Retail and Wholesale
Centers (2) Rs. 25,000 each
In respect of other sales centers fines were imposed in sums of Rs.
15,000, 10,000, 8,000, 5,000 and 1,500
These cases were filed for the following reasons:
01. Non exhibiting the price list
02. Notice Board not furnished
03. Sale of goods at a higher price
04. Non - compliance of directions of CAA.
05. Deceiving/ misleading the Consumer
06. Sale of goods after the expiry date.