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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

“Crane Bank has no basis to sue me; court should dismiss their case,” Sudhir tells court

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Dr Sudhir Ruparelia (right) with Kampala Associated Advocates' Senior Partner, Peter C. R. Kabatsi

Ruparelia Group Chairman, Dr Sudhir Ruparelia and Meera Investments Limited, one of his real estate companies, have applied to the Commercial Court, asking it to dismiss case HCCS 493 of 2017 brought against them by Crane Bank (in Receivership).

The applicants in Miscellaneous Application No. 320 of 2019 argue that Crane Bank (in receivership) has “no locus standi to bring the suit” against them and that the case is “barred by law.”

Black’s Law Dictionary, 10th Edition, defines locus standi to mean: “The right to bring an action or to be heard in a given forum.”

In HCCS 493 of 2017, Bank of Uganda through Crane Bank (in receivership) alleges 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 through various payments to two construction companies and a technology company.

Dr Sudhir Ruparelia interacts with Bank of Uganda’s legal team at the Commercial Court before the hearing started.

The companies alleged to have been used by Sudhir for these payments have since vehemently rejected the above claims and produced evidence to discredit BoU’s claims.   

BoU through Crane Bank (in receivership) also alleges 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.

Crane Bank now wants back the 48 freehold certificates together with duly executed transfer deeds in respect of each one of them in favour of Crane Bank or its nominee.

A receiver cannot sue or be sued

In their preliminary objections before Hon Mr. Justice David K. Wangutusi, today, July 3, 2019 Sudhir through his lawyers, Kampala Associated Advocates, argued that a receiver or an entity in receivership- in this case Crane Bank cannot sue or be sued.

Kampala Associated Advocates was represented by Senior Partner, Peter C. R. Kabatsi, Managing Partner Joseph Matsiko and Partner Elison Karuhanga.

“The suit was filed when Crane Bank Limited was in receivership. At issue therefore is; can a suit be filed when a financial institution is in receivership? Our submission is that the receiver has no locus to file the suit,” argued the lawyers.

Dr Sudhir (right) with son and Managing Director of the Ruparelia Group, Mr. Rajiv Ruparelia

Bank of Uganda on the 20th October 2016 took over the management of Crane Bank and pursuant to Sections 87 (3) and 88 (1) (a) & (b) of the Financial Institutions Act 2004 and on the 20th of January 2018 BoU placed the bank under receivership pursuant to Section 94 of the FIA.

Sudhir’s lawyers further argued that the FIA 2004 provides three ways in which BOU may takeover and resolve a financial institution in distress and these include: statutory management, receivership, and liquidation. They added that while the law allows the statutory manager and the liquidator to sue, it does not allow the receiver to sue or be sued.

“From 20th October, 2016 to 20th January, 2017 Bank of Uganda could institute a suit under Section 89 (1),(2)(e),(9) of the FIA. We shall submit that they lost that power on 20th January, 2017 when they placed the Plaintiff under receivership,” submitted the lawyers, adding: “A financial institution under receivership is therefore a closed financial institution. When a financial institution is placed under receivership the statutory manager’s powers cease from that day and for all intents and purposes the institution is closed.

Section 95 of the FIA 2004 only grants a receiver powers to:

  1. arrange a merger with another financial institution;
  2. arrange for the purchase of assets and assumption of all or some of the liabilities by other financial institutions;
  3. arrange to sell the financial institution;
  4. liquidate the assets of the financial institution.

But even then this must be done within 12 months of taking over as a receiver.

“The powers of the receiver are therefore limited, both in extent and in time. He can only exercise the four powers mentioned above and this has to be done within twelve months,” Sudhir’s lawyers submitted, adding: “Section 95 does not mention suing as one of the things he (the receiver) will do in the exercise of his powers.”

“Under the FIA, the receiver cannot file a law suit. When the legislature does not grant an express power to a statutory entity to sue then that entity simply cannot sue. This very point was determined by the Supreme Court of Uganda,” argued KAA Advocates.     

“If a party cannot be sued, it follows that that party cannot sue. We are fortified in this by the binding decision in the supreme court in the case of The Commissioner General Uganda Revenue Authority vs Meera Investments Limited SCCA 22 of 2007,” the lawyers further submitted.

Non-Ugandan citizens cannot own mailo or freehold land

KAA lawyers also submitted that BoU’s claim on Meera Investments’ land is barred by law since Crane Bank- by virtue of being majority owned by non-Ugandan citizens is a non-citizen and therefore barred from acquiring or holding mailo or freehold land in Uganda by Section 40 (1), (4), (7)(a)(d), and (8)(a) of the Land Act.  

“The majority shares in CBL are held by a company incorporated in Mauritius. A further 4% is held by Mr. Jitendera Sanghani, a British national. This would in effect mean that a total of 51.33% of the shares are held by non-citizens…..It is well settled that under no circumstances can a non-citizen hold freehold land and a number of authorities elucidate this Constitutional point.”                              

The lawyers also dismissed Crane Bank’s prayers to have the land held in trust for them by a designated nominee saying that doing so would “would defeat the express provisions of Article 237 of the Constitution” shich says that mailo land and freehold land cann only be owned by Ugandan citiznes.

“The purpose of this Court is to interpret the transaction in accordance with the law and not to side step the law with ingenious legal trusts. A trust is a creature of the doctrine of equity and the branch of law called equity and trusts. One of the maxims of equity is that: “equity follows the law and will therefore not allow a remedy that is contrary to the law”. The Court cannot construct this trust because it will be an illegal trust. A court of law cannot grant an illegal prayer,” closed the lawyers in their submissions.

Justice Wangutusi has set August 26, for a ruling on the objection.

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Commercial Justice

Bad and barred: Sudhir’s lawyers punch further holes in BoU’s case against businessman

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Dr. Sudhir Ruparelia surrounded by his lawyers Jet Tumwebaze (left) and Peter C. R. Kabatsi (right) of Kampala Associated Advocates address the press in December 2017 following court dismissal of law firms MMAKS Advocates and Bowmans Uganda from representing BoU against the businessman over conflict of interest.

City Businessman and billionaire Dr Sudhir Ruparelia, has applied to the Commercial Court to dismiss a case brought against him and his real estate firm, Meera Investments Ltd by Bank of Uganda through Crane Bank (in receivership).

In Miscellaneous Application No. 320 of 2019 the businessman wants Civil Suit No. 493 of 2017- Crane Bank (in receivership) vs. Sudhir Ruparelia & Meera Investments Ltd, dismissed arguing that the applicant (Crane Bank) has no locus standi, as a company under receivership cannot sue and be sued.

Locus standi, is a law term used to mean the ability, right or capacity of party to bring an action or to appear in a court and or participate in a case.

LEGAL WALL: Sudhir surrounded by his Kampala Associated Advocates. The top city law firm has punched major holes in Crane Bank’s/BoU case against the businessman

In HCCS 493 of 2017, Bank of Uganda through Crane Bank (in receivership) allege 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 through various payments to two construction companies and a technology company.

Some of the companies alleged to have been used by Sudhir for these payments have since vehemently rejected the above claims and produced evidence to discredit BoU’s claims.    

Crane Bank also accuses Sudhir of failing to remit more than Shs52 billion in workers’ contributions to the National Social Security Fund (NSSF) and wants him to pay the amount. 

It is 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. Crane Bank wants the land back.

BoU Deputy Governor Dr. Louis Kasekende (left) and Governor Prof Emmanuel Tumusiime Mutebile appear before Parliament’s COSASE last year. The COSASE probe and the Auditor General have also found that the seizure and subsequent sale of Crane Bank and 6 other banks breached several provisions of the Financial Institutions Act (2004) and want the owners of the banks compensated by BoU.

However the businessman, through his lawyers, Kampala Associated Advocates, in an application to court argues that “H.C.C.S 493 of 2017 is expressly barred by law as the respondent (Crane Bank) has no power to sue or be sued.”

The lawyers also argue that Crane Bank cannot sue for “the recovery, transfer and return of freehold property when the respondent is a non-citizen within the meaning of the law”- since 51% of the bank is owned by non-Ugandans.

The Ugandan Constitution and the Land Act, bars none Ugandans from owning freehold property. The lawyers therefore argue that Crane Bank is not capable of holding the suit property in its names and therefore cannot sue for it.

The lawyers also hold that Crane Bank is not “permitted by law to institute or commence actions against its shareholders and hence the instant suit (H.C.C.S 493 of 2017 ) is barred by law.”

They also want the NSSF claims against Sudhir dismissed arguing that the claim for the National Social Security Fund should have been made against Crane Bank and not its shareholders, as the shareholders were not involved in running the bank.

Sudhir’s lawyers also say, the case brought against the businessman “does not disclose a cause of action against the applicant (Sudhir)” as provided for by Order 6 Rule 29 of the Civil Procedure Regulations.

The businessman, through his lawyers want the entire H.C.C.S 493 of 2017 dismissed with costs.  

The case will first be heard on 3rd July 2019.

Shaky BoU Case

This recent application further threatens BoU’s case following a December 2017 dismissal by the Commercial Court of BoU’s lawyers- MMAKS Advocates and Bowmans Uganda from representing Bank of Uganda.  

Parliament’s Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) and the Auditor General have also found that the seizure and subsequent sale of Crane Bank and 6 other banks breached several provisions of the Financial Institutions Act (2004) and want the owners of the banks compensated by BoU.

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Commercial Justice

OPINION: Conflicted and unprofessional lawyers; time for legal fraternity to act on their prodigal sons

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Left- Right: Bowmans' David F.K Mpanga, MMAKS Advocates' Masembe Kanyerezi and Sebalu & Lule's James Mukasa Sebugenyi. The Commercial Court has faulted the three top law firms for conflict of interest and breach of advocates professional regulations, further casting a shadow on a profession that is facing increasing complaints from the public.

Lawyers, the world over, would love us to call them learned friends.

By deduction, senior lawyers are perceived to be ‘more learned’ than their other colleagues; but when senior lawyers cannot tell something as simple as conflict of interest, then you begin to wonder whether it is a genuine mistake or rather overt professional greed.

Yesterday, April 29th 2019, Commercial Court’s Hon Justice Paul Gadenya ruled that another top city law firm, Sebalu & Lule Advocates, was severally in breach of the Advocates (Professional Conduct) Regulations when they agreed to represent dfcu Bank in a case brought against the bank by Ruparelia Group, yet the law firm knew, that having acted for the Group before, they were in possession of confidential information that would be detrimental to their former client’s interests.

In his ruling, Justice Gadenya, did not mince his words, he told them: “For the record, the engagement of the 1st respondent (Sebalu & Lule Advocates) as counsel for the 2nd respondent (dfcu) violated Regulation 4, 9 and 10 of the Advocates (Professional Conduct) Regulations.”

Rule No.4 pertains prejudicing former clients.

Rule 9 forbids an advocate from “appearing before any court or tribunal in any matter in which he or she has reason to believe that he or she will be required as a witness to give evidence.

 Rule 10 stops advocates from using their privileged relationship with their clients for their own personal advantage.  

On this basis, Justice Gadenya barred Sebalu & Lule Advocates against acting for dfcu and Bank of Uganda against the Group.

Gadenya’s ruling is similar and related to another Commercial Court ruling by Hon Justice David K Wangutusi who in December 2017 disqualified two other law firms MMAKS Advocates and Bowmans Uganda from representing Bank of Uganda in a case the Central Bank brought against city businessman Sudhir Ruparelia’s on the grounds that the two law firms have previously acted for the businessman and were therefore in possession of privileged information.

Significant as these two rulings are for justice, it is not every day that you will meet a Sudhir Ruparelia with enough clout and legal literacy to take on the law firms and beat them at their own game. One then wonders, who will then save the largely gullible and vulnerable public from predatory and professional greedy lawyers?  

According to a 2017 Uganda Law Society (ULS) report, there was a 32.6% increment in complaints against advocates from 150 complaints to 199 complaints. For the registered 774 law firms in 2017 according to the Ministry of Justice, this represents a complaints to law firms ratio of 25.7% which is on the very high side. Given that the Disciplinary Committee was able to dispose of only 35.2% (70) of the complaints, the amount of pain being visited on the public by the same people who purport to be guardians of the law becomes so evident.  

So does the need for an urgent intervention from the regulators of the profession such as the Department of Law Council as well as Uganda Law Society!

Bank of Uganda obsession with these 3 law firms

As if this is not disturbing enough, another question lingers over Bank of Uganda’s excessive obsession with the above named 3 law firms that the central bank will risk everything to work with them.

MMAKS has been for ages the retained external law firm for Bank of Uganda, which is principally okay, but not when they have been severally named in a number of questionable dealings- but most importantly for providing what is now believed to be substandard legal services during the takeover and sale of a number of defunct banks; advice whose quality has been questioned by both the Attorney General and parliament.

But somehow the Central Bank is still holding onto them- even when the Governor has raised a red flag over excessive bills!

Another questionable decision by the Central Bank is why they have up to now maintained the services of Sebalu & Lule Advocates even when in the early stages of their appointment a red flag on conflict of interest was raised. Did BoU have to wait for this long to dismiss the law firm, even when the writing was on the wall- especially after the December 2017 ruling by Wangutusi on MMAKS and Bowmans?

In his closing remarks to COSASE, Prof Tumusiime Emmanuel Mutebile, the BoU Governor committed to bring about sweeping reforms- the public is waiting.  

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