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Commercial Justice

COSASE REPORT: National Bank of Commerce moves to sue BoU for UGX295bn as BoU braces itself for over UGX 1 trillion lawsuits

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NBC’s letter to the constitutional court, seeking to amend their case, to add “new material developments” believed to be findings by the Auditor General and COSASE about the illegal closure of the bank on September 2012

National Bank of Commerce (NBC) has become the first bank to drag Bank of Uganda (BoU) to court, following the damning Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) that implicated the central bank for flouting several sections of the Financial Institutions Act, (FIA) 2004.

According to correspondences seen by this news site, NBC lawyers, Nambale, Nerima & Co Advocates, on 2nd April 2019 wrote to the Mediation Registrar of the Constitutional Court of Uganda seeking to add new material evidence to Constititional Application No. 38 of 2012 – an earlier existing case against Bank of Uganda by NBC shareholders.

“We act for the applicant, jointly with M/S Mugisha & CO Advocates, Muwema & Co Advocates and Twinobusingye Severino & Co Advocates…We have instructions to seek issuance of Mediation Notices to enable us address Court on new material development and chart a way forward for resolution of the long outstanding dispute,” wrote NBC’s lawyers.

According to impeccable sources that this reporter spoke to, the “new material evidence” pertains to the findings by both the Auditor General and COSASE that the process of closing NBC was severally in breach of the FIA 2004.

“There is a connection with the COSASE report but I can’t say more,” said the highly placed source, who requested not to be named.

NBC closed and sold on same day in violation of FIA, 2004

According to findings by COSASE, NBC was “closed and sold on the same day, 27th September 2012” and “the Auditors were appointed on 17th October 2012 and an inventory report was produced on 15th January 2013.”

The committee went ahead to conclude that “there was noncompliance with the requirement of Section 89(3) of the FIA 2004 in that: The Auditors were appointed three weeks after takeover and sale which contravened section 89 (3) that requires the said appointment to be made as soon as possible.”

The committee also observed that “due to the absence of an inventory report, the Central Bank could not ascertain with certainty the value of what it took over and sold,” adding that: “The takeover and sale of the Bank happened on the same day and was concluded within six hours in contravention of Section 99 (1) and (2) of the FIA, 2004 which require that the Central Bank can only intervene after making a winding up order and publishing the same in the newspaper for general circulation.”

COSASE recommended that the wronged banks be compensated and the Central Bank officials responsible held liable.

Highlights of BOU’s violations of the law

While appearing before COSASE in February 2019, Hon. Mathew Rukikaire, the Chairman Board of Directors, NBC told MPs that other than severally flouting sections of FIA, 2004, BoU defied a Constitutional Court injunction stopping BOU from continuing with the process of winding up, liquidating or selling the assets of NBC to Crane Bank issued on the 28th Sept, 2012.

The injunction arose from Constitutional Petition No. 44 of 2012, (Humphrey Nzeyi vs BOU and the Attorney General) challenging the constitutionality of BOU’s planned takeover of the bank.

The Constitutional Court did on the 28th Sept, 2012 issue an injunction stopping BOU from continuing with the process of winding up, liquidating or selling the assets of NBC to Crane Bank.

However, according to Rukikaire, ““Notwithstanding the injunction issued by the Constitutional Court, some BOU senior officers acted in contempt of court and continued with the purported sale process of NBC assets. As a result of these contemptuous actions by some BOU senior officers, the petitioner (Humphrey Nzeyi) filed an application for contempt of court- Constitutional Application No. 40 of 2012 (Humphrey Nzeyi Vs. Dr. Louis Kasekende, Justine Bagyenda, Benedict Sekabira And Godfrey.M. Yiga and others).”

Both Constitutional Petition No. 44 of 2012 and Constitutional Application No. 40 of 2012 have never been heard.

It is on these grounds that NBC’s lawyers are seeking to add the new material information to their Constitutional Petition No. 44 of 2012.

According to Rukikaire, NBC shareholders want UGX295 billion as compensation for their loss.   

“As a result of the above acts by some senior staff of BOU, NBC has suffered loss, damage and consequential loss computed at UGX. 295 billion as of December, 2018,” Rukikaire told COSASE MPs.  

Multibillion shilling claims against BoU

The NBC case is believe to be the first in a barrage of suits expected to be brought against BoU by the directors and shareholders of the seven (7) defunct banks.

Former directors and shareholders of the defunct Global Trust Bank told COSASE MPs, that they are seeking Shs 315.7 billion in compensation for the alleged illegal closure of their bank. 

While the Directors and shareholder of Crane Bank did not state in absolute amounts, their desired compensation, they did indicate that they too wanted compensation, estimated in several hundreds of billions of Shillings.

Dr Sudhir Ruparelia, the former Vice Chairman and one of the largest shareholders in the former Crane Bank told the COSASE MPs that “BoU should return the bad book (written off/provisioned loan) that is being illegally collected on by dfcu. The bad book (written off/provisioned loan) was paid for by the shareholders capital and therefore belongs to the shareholders.”

The Crane Bank bad book alone stands at UGX570 billion.

Sudhir, also wants BoU to return all the money that the shareholders advanced to Crane Bank as shareholder loans amounting to USD 23.5 million, saying that “the purposes for which this money was advanced was frustrated by BOU, therefore BOU has no basis to keep it.”

Sudhir, on behalf of the shareholders also demanded that a fresh market valuation should be conducted of the assets and liabilities that were sold to dfcu and “any excess value to the assets returned to Crane Bank.”

He also asked that there should be a valuation of the goodwill and business that dfcu took as a preferred buyer.

“dfcu got 46 branches, became the 3rd largest bank overnight, and also got deposits worth UGX 1,355,771,332. Dfcu also got about 600,000 active accounts. The said business had a value that should be audited and its price returned to the shareholders,” he demanded.

Sudhir also said shareholders “want accountability for the money that BOU claims it purported to have injected into Crane Bank.”

Sudhir’s demand for accountability are hinged on a recent Auditor General Special Audit Report on the UGX478bn injected into Crane Bank by Bank of Uganda, that found that out of UGX478.8 billion that BoU purportedly injected into Crane Bank as liquidity support- a total UGX270 billion, ostensibly sent to Crane Bank customers in cash and Telegraphic Transfers can’t be traced yet.

Commercial Justice

Lubowa Hospital Construction: ROKO, Finasi Agree to Settle Matter Out of Court

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Parliament early this year approved a loan guarantee of 1.4 trillion shillings to Finasi/ROKO, for the construction of the hospital located in Lubowa, Wakiso district.

Artistic impression of Lubowa International Specialized Hospital

The two construction companies who were selected as a special purpose vehicle have been battling for the construction of an International Modernized Health Facility. As you read this, they have now agreed to settle the case out of court.

The project has faced setbacks with the SPV Finasi/ROKO falling apart following the introduction of another player Power China Guizhou Engineering co as the civil works contractor.

ROKO petitioned court seeking to alter the move by FINASI international FZC chaired by Enrica Pinneti to eject it from the shareholding in the construction of the hospital.

On July, 4th, 2019, Justice Andrew Bashaija issued an interim order to Roko Construction blocking Finasi/Roko Construction from evicting the former from the site in Lubowa where a specialized International Hospital is to be constructed.

Roko Construction through their lawyer Enos Tumusiime argued that they would suffer damages and would be affected should court decline to grant them an injunction.

Justice Bashaija thus granted them the order however, a few weeks later, Roko construction returned to court citing that Finasi Roko and its agents had continued to evict them including removing their properties from the site.

Roko Construction thus demanded that they be paid a fine of 11.8 billion shillings and punitive damages of 22.1 billion shillings as sanctions for contempt of court.

The New Breathe

On Wednesday, the parties told Justice Andrew Bashaija that they are planning to settle the matter out of court.

Justice Bashaija granted them one week to finalize with the mediation and if they fail, they should return to court on September, 4th, 2019.

Media was however not allowed to cover proceedings which were taking place in the Judge’s chambers.

The 264-bed Health care facility if finished, it will be solving most of the complicated diseases that have been forcing Ugandans to go abroad to seek treatment.

It will handle cases of bone marrow transplant, heart diseases, cancer treatment, organ transplant, fertility treatment, highly specialized surgeries, among others.

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Commercial Justice

BAD MONEY AFTER BAD MONEY; BoU risks UGX110 bn in costs; to appeal loss to Sudhir, despite bad case

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The idiom “throwing good money after bad money” refers to spending more money on something problematic that one has already spent money on, in the (presumably futile) hopes of fixing it or recouping one’s original investment.

Unfortunately, this was the decision the Bank of Uganda Governor had to make on Tuesday, August 27th at the behest of Margaret Kasule the central bank’s legal counsel, with help from J.B Byamugisha Advocates, their external lawyers.

At a meeting called by the Governor in his office, on Tuesday, Mutebile was faced with two decisions: accept the ruling, pay the costs and take the smack in the face or appeal the ruling, albeit the flimsy grounds, save face and postpone the costs to a later date, even if they will be higher- after all in either case, it is the taxpayer to bear the costs.

Unfortunately, Mutebile took the latter, thus the hastily made announcement on Twitter, by BoU Director of Communications that BoU would appeal and pursue the matter to its logical conclusion.  

Why do we believe, BoU has a bad case?

On 30th June 2017 Crane Bank Limited [In Receivership] filed Civil Suit No. 493 of 2017 against the Sudhir and Meera Applicants seeking a payment of an equivalent of USD110 million as compensation for breach of fiduciary duty. 

Dr Sudhir Ruparelia has handed down BoU and the various conflicted law firms a legal battle of their lives.

Crane Bank (in receivership) also sued Meera Investments for 48 freehold land titles comprising its former countrywide branch network that it claimed were illegally transferred from Crane Bank to Meera Investments. 

Sudhir, through KAA Advocates applied to court to dismiss the suit saying that Crane Bank (in receivership) has no locus to bring the suit to court, since the Financial Institutions Act (2004) did not permit a receiver to sue or be sued.  Sudhir’s lawyers Kampala Associated Advocates also said that on account of being a foreign owned institution, Crane Bank could not own freehold land and therefore couldn’t sue to own, that which it legally cannot own. 

In his ruling, Hon Justice David Wangutusi, did not mince his words- he said BoU “did not have jurisdiction to file HCCS No. 493 of 2017” and that the orders sought against Meera are “barred in law, rendering” BoU with no “cause of Action” against Meera.

Giving his reasons on why he thought BoU did not have a locus standi, Wangutusi, based his ruling on The Financial Institutions Act which clearly lays out the role of a receiver.

“In my view if it (FIA 2004) had wanted the Receiver who had only 12 months on stage to sue, it would have expressly provided for it. It is not that the Act does not provide for instances of going to Court, having provided for others and left out the Receiver speak loud and clear of the intention of the legislature.

It is not upon Court now to imagine and say “the legislature forgot this we should insert it for them.”          

It is then clear that when the Receiver filed this suit, it was not clothed with   authority. It had no power to do so and Court cannot impute an intention foreign to the legislature.”

“The end result is that once Crane Bank was put under Statutory Management, its Board of Directors was suspended. If there was to be any suit, it would be brought by the Central Bank as the Statutory manager under section 89(2)(e) or by the Liquidator with approval of the Central Bank under section 100(1)(a) of the Financial Institutions Act.

These two were empowered to initiate and defend court action by the Financial Institution Act which interestingly left out the Receiver. The Legislature did not want any court action against the Receiver…… It follows that the Respondent under Receivership lacked locus standi. Without locus standi its attempt at filing a suit was null ab initio (to be treated as invalid from the outset).”   

Following the dismissal, he ruled that “The Bank of Uganda shall bear the costs of the application and the suit”

How much is at stake?

According to several lawyers CEO East Africa talked to in calculating the costs, usually at the High Court Level- usually the judge allows up to about 2% of the decretal amount or amount in dispute. So in this case since the Central Bank was suing Sudhir for an equivalent of $110 million, the least amount that Sudhir would sue for would be USD2.2 million (UGX8.1 billion)- although this can go up to 5% or USD5.5 million (UGX20.3 billion) if the lawyers make a good case.

Given the glaringly bad case, analysts are wondering why BoU’s legal counsel, Margaret Kasule, accepted to have the case go to trial in the first place.

In the case of Meera, it would have to be 2%-5% of the UGX400bn estimated value of the 48 freehold titles in contention, which would come to anywhere between UGX8 billion to UGX20 billion.

In Shilling terms- Sudhir would be entitled to taxed costs amounting up to UGX40.6 billion, before the appeal.

But now that there is a decision to appeal, should BoU lose, they stand to pay up to 10% of the decretal sum- in this case USD11.1 million (UGX41 billion) to Sudhir and UGX40 billion to Meera Investments- altogether in excess of UGX81 billion.  

It could even be more, given that the judges are also allowed discretion. Some lawyers and analysts have put the some to anywhere between UGX81 billion to UGX110 billion.

But maybe Bank of Uganda does not care, at this stage because it is not their money- it is the taxpayer’s money, who incidentally includes Dr. Sudhir Ruparelia, one of the country’s biggest tax payers.  

Moreso, the decision to appeal could be “postponement of embarrassment” given that both the Governor and Deputy Governor’s contracts are about to expire and may not be renewed. An appeal therefore means that the cost and embarrassment of the loss will be in another governor’s regime.

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Commercial Justice

“Everyone who stole my bank, is going to pay,” Sudhir vows

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Dr Sudhir Ruparelia addresses a media conference soon after Commercial Court dismissed the BoU case

“Everyone who has played a part in the fraudulent activities is going to pay for it – we are not going easy.  That includes dfcu that is fraudulently occupying Meera Properties; they are the biggest fraudsters in this country. They need to understand that they are illegally occupying our branches and they fraudulently transferred them into their names without the consent of Meera Investments.”

These were the words of Ruparelia Group Chairman and founder, Dr Sudhir Ruparelia, immediately after the Commercial Court dismissed a UGX397 billion suit against him his Meera Investments Ltd.

On 30th June 2017 Crane Bank Limited [In Receivership] filed Civil Suit No. 493 of 2017 against the Sudhir and Meera Applicants seeking a payment of US$ 80,000,000, US$ 9,270,172.00, US $ 3,560,000.00, US $ 990,000.00, UGX. 52,083,953,995 as compensation for breach of fiduciary duty.  

Crane Bank (in receivership) also sued Meera Investments for 48 freehold land titles comprising its former countrywide branch network that it claimed were illegally transferred from Crane Bank to Meera Investments.  

Sudhir, through KAA Advocates applied to court to dismiss the suit saying that Crane Bank (in receivership) has no locus to bring the suit to court, since the Financial Institutions Act (2004) did not permit a receiver to sue or be sued.  Sudhir’s lawyers Kampala Associated Advocates also said that on account of being a foreign owned institution, Crane Bank could not own freehold land and therefore couldn’t sue to own, that which it legally cannot own.  

No Jurisdiction

In his ruling today, Hon. Justice David Wangutusi concurred with Dr Sudhir’s lawyers and ruled that Crane Bank (in receivership) “did not have jurisdiction to file HCCS No. 493 of 2017.”

“This is a big win over the mafias and the whole conspiracy that’s been holding the country at ransom in the central bank. I think this is going to be a lesson to them. They have taken over 7 banks and they cannot account for any of them. How do you fail to account to someone? I am a shareholder, I lost a lot of money; I put 25 years of my time and you steal my bank? –you steal all my assets, all my paid-up capital, and all my assets just stolen. And you claim that you put this money in Crane Bank and you can’t even account for it, you can’t even account for Shs290 Billion – where is it all gone?”

He also said that “the property the Plaintiff/ Respondent was seeking when she filed the suit on 30th June 2017 had earlier been given away by the Receiver to dfcu Bank on the 24th of January 2017 four days into Receivership and five months before the filing of this suit thus leaving the Plaintiff/ Respondent with no property.”

“Furthermore, it’s my finding that the orders sought against the 2nd Applicant (Meera) are barred in law rendering the Plaintiff/ Respondent (Crane Bank) with no cause of action against the 2nd Applicant (Meera). For those reasons this application succeeds and the suit is dismissed. The respondent shall bear the costs of the application and the suit,” he ruled.

Big win over the mafias

Addressing a media conference outside the Commercial Court, a tough-talking Sudhir said:  “Everyone is going to pay the price for this,” he said, adding: “We are now going to put up a counter claim. You know COSASE found out a lot of things of what these people did. With guidance from my lawyers, we will put a counter claim. They did not value our assets, they did not account for the cash in the bank; all the money was just stolen. This is terrible,” Sudhir said.

“This is a big win over the mafias and the whole conspiracy that’s been holding the country at ransom in the central bank. I think this is going to be a lesson to them. They have taken over 7 banks and they cannot account for any of them. How do you fail to account to someone? I am a shareholder, I lost a lot of money; I put 25 years of my time and you steal my bank? –you steal all my assets, all my paid-up capital, and all my assets just stolen. And you claim that you put this money in Crane Bank and you can’t even account for it, you can’t even account for Shs290 Billion – where is it all gone?” quizzed Sudhir.

Sudhir also said this was a “tremendous achievement” and “historical.

“Nobody has been in the past been able to win Central Bank – they have stolen 7 different banks and not accounted to any shareholder and this is the unfortunate part of the whole scenario. You take somebody’s assets, you steal it, you profit from it and you don’t account for it; this is so ridiculous!  Then, they sued for $100 Million; the money they stole, they are suing me for it. How?” he wondered.   

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