BoU loses Court of Appeal UGX397bn case against Dr. Sudhir; could face lawsuit of up to UGX600 billion

Court of Appeal Justices, Alphonse Owiny Dollo; Cheborion Barishaki and Stephen Musota have today agreed with earlier ruling by Commercial Court Judge, Hon Mr. Justice David K. Wangutusi’s August 26^th 2019 that a bank in receivership, under the Financial Institutions Act (2004) cannot sue or be sued and therefore and therefore Crane Bank (in receivership) cannot and should not have sued businessman Dr. Sudhir Ruparelia and his company Meera Investments.

Delivering their ruling today, Civil Appeal 252 of 2019 at the Court of Appeal, the trio also ruled that Crane Bank (in receivership) being a foreign owned bank, cannot own freehold land in Uganda and therefore has no legal basis to sue Dr. Sudhir for land it cannot own.

“The appeal consequently fails. It is thus dismissed with costs here and the court below,” ruled the justices.

This is the second time, Bank of Uganda’s case- HCCS 493 of 2017, in which BoU, through Crane Bank (in receivership) alleged that the businessman fraudulently took out up to $92.8m (about Shs334b) and another Shs8.2 billion of depositors’ money from Crane Bank for personal gain is failing.

The case’s failure means that the money that Bank of Uganda claims that it injected into Crane Bank and therefore sought to recover from the businessman cannot be recovered. However, in another twist of events, an Auditor General’s Special Audit Report revealed that out of UGX478.8 billion that BoU purportedly injected into Crane Bank as liquidity support- a total UGX270 billion, couldn’t be traced to the final recipients. This raises questions if actually all the money was used to recuperate the bank or it got lost in thin air.

BoU through Crane Bank (in receivership) had also alleged that the entire land where Crane Bank had branches, was transferred to Meera Investments Limited, another company owned by Sudhir and subsequently leased the land to Crane Bank illegally. But Court of Appeal’s ruling now agrees with an earlier ruling by the Commercial Court that Crane Bank cannot own the 48 freehold certificates and therefore couldn’t have sued on them in the first place.

Implications of the ruling  

This ruling now compounds issues for Bank of Uganda, which was earlier found by the Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) to have illegally ‘sold’ UGX570bn worth of bad loans belonging to Crane Bank (CBL) shareholders, at a heavily discounted and questionable price of UGX200 billion and in the process “disadvantaging” Dr. Sudhir Ruparelia the bank’s owner.

The MPs also said that the “casual and informal manner” in which BoU sold Crane Bank to dfcu Bank, severally did not comply with various clauses of the Financial Institutions Act (2004) and was in “breach of all sound corporate governance principles.”

The MPs recommended that the shareholders of Crane Bank compensated for this and the responsible BoU officials held liable.

The finding by the MPs also concurred by assertions by Crane Bank shareholders, that since shareholders had been made to forfeit their share capital in excess of UGX350 billion held with the central bank and made to pay an additional $23.5 (Shs85 billion), the bad loan book in effect belonged to Crane Bank shareholders.  

Dr. Sudhir and other bank’s shareholders want the entire CBL sale deal to be revisited, arguing that takeover of their bank by BoU was not to save it, but rather to asset-strip it and sell it to a preferred buyer (dfcu).

In an interview soon after the ruling, Dr Sudhir and his lawyers, Kampala Associated Advocates said they are compiling a lawsuit against Bank of Uganda for costs and damages.