So the colour-highlight options are there (not disabled) just the
default highlight-colour is set to "Gray" for B&W devices while for Colour devices it's "Yellow".
Not sure how to take screenshot while in that view but here is how it looks on B&W devices.
(screenshot is not taken from my device)
However Kobo's default reader program "Nickel", disabled colour options for B&W devices. When you long click any text it just highlights them.
PS: Answering own question, in-case anyone coming from search engine queries...
