Legal Tangle

Jan 11, 2009 (LBO) – The widening fallout on Sri Lanka’s inter bank markets of petroleum derivatives suspended by court took a new turn this week with state-run People’s Bank going to court against privately owned Commercial Bank. People’s Bank won a restraining order from Colombo Commercial High Court against Commercial Bank stopping the private bank from taking over 15 million dollars or any other assets of the People’s Bank, state run The Daily News reported.

The souring of longstanding relationships in the inter bank market started after state-run People’s Bank suspended payments to Commercial Bank on a petroleum derivative re-sold to state-run Ceylon Petroleum Corporation.

Late last year, Sri Lanka’s Supreme Court halted payments by Ceylon Petroleum Corporation to Citibank, Standard Chartered, Deutsche Bank, People’s Bank and Commercial Bank on oil derivatives which had gone against the utility.

People’s Bank, in addition to directly selling derivatives bought from a foreign counterparty, also re-sold a contract bought through Commercial Bank. The state-bank then suspended payments to Commercial Bank.

Other banks involved in oil derivatives continued to pay their counterparties. The banks were not pa