This case sets a precedent that when an entity is abolished and replaced by a new entity through legislative action, employment contracts do not automatically transfer unless explicitly stated in the law. Employees must either accept new contracts or seek compensation as provided under the governing statute. The decision reinforces the principle that statutory provisions determine successor liabilities, not assumptions of continuity.

• Case Title: K.G.P.M. Nirmalatha v. Rajarata Sanwardana Bankuwa & Others
• Court: Supreme Court of the Democratic Socialist Republic of Sri Lanka
• Case Reference: SC Appeal No. 168/2015

Background: The case originated in the District Court of Anuradhapura (Case No. M 21814), where the plaintiff, K.G.P.M. Nirmalatha, filed an action against Rajarata Sanwardana Bankuwa and other defendants regarding alleged deprivation of overtime payments, promotion, and other employment-related claims. The case subsequently moved to the High Court and then to the Supreme Court following appeals.

Legal Issue: The primary issue before the Supreme Court was whether the Pradeshiya Sanwardana Bankuwa, as the successor entity to Rajarata Sanwardana Bankuwa, could be substituted as the 1st Defendant in place of the abolished bank and whether the employment contracts and related liabilities were transferred to the new entity under the Pradeshiya Sanwardana Bank Act, No. 41 of 2008.

Key Arguments:

• Plaintiff’s Argument:
  • The new entity (Pradeshiya Sanwardana Bankuwa) should be substituted as the defendant since Rajarata Sanwardana Bankuwa was abolished.
  • The Pradeshiya Sanwardana Bank Act, No. 41 of 2008 merged all Development Banks and vested their business in the new entity, making it responsible for previous liabilities.
• Defendant’s Argument:
  • The Act did not provide for a merger of banks but only vested business operations in the new entity.
  • Employment contracts were not automatically transferred.
  • The plaintiff had accepted a new employment contract with Pradeshiya Sanwardana Bankuwa, which nullified claims against the former employer.
  • The plaintiff was entitled to compensation under the Act but not to continue the old lawsuit against the new entity.

Legal Provisions Considered:

• Section 42 of the Pradeshiya Sanwardana Bank Act: Provided for vesting of business but not employment contracts.
• Section 45(2)(b): Allowed continuation of actions related to the vested business but not employment-related claims.
• Article 80(3) of the Constitution: Prohibited courts from challenging the validity of enacted legislation.

Supreme Court Decision:

• The Supreme Court ruled in favor of the appellant (Pradeshiya Sanwardana Bankuwa), holding that:
  • The employment contracts of Rajarata Sanwardana Bankuwa employees were not automatically transferred to the new bank.
  • The plaintiff’s employment relationship with the new bank was based on a new contract.
  • The plaintiff was not entitled to continue the action against the Pradeshiya Sanwardana Bankuwa as it was not liable for employment-related claims against the abolished bank.
  • The substitution of Pradeshiya Sanwardana Bankuwa as the 1st Defendant was erroneous.
  • The appeal was allowed, the lower court decisions were set aside, and the appellant was released from proceedings.

Conclusion: This case sets a precedent that when an entity is abolished and replaced by a new entity through legislative action, employment contracts do not automatically transfer unless explicitly stated in the law. Employees must either accept new contracts or seek compensation as provided under the governing statute. The decision reinforces the principle that statutory provisions determine successor liabilities, not assumptions of continuity.

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