The controversy between Crane Bank and Bank of Uganda came to an end after businessman Sudhir Ruparelia obtaining a final Supreme court order allowing him to revert Crane bank back to its shareholders. In January 2017, Crane bank was acquired by dfcu bank at Shs 200 billion after the central bank ruled that it was undercapitalized.
The decision made on Friday by justice Prof Lillian Tibatemwa Ekirikubinza follows a disagreement that has been ongoing for over six months between the Bank of Uganda and Sudhir on whether the final order needs to be enforced should also reflect that the bank is reverted to the businessman.
This decision arose from an appeal filed by Crane bank in receivership (Bank of Uganda) on August 1, 2020, challenging the decision by the Court of Appeal to dismiss the case in which they accused Sudhir and his company Meera Investments Limited of withdrawing Shs 397 billion from Crane bank via fraudulent transactions.
It all started on June 30, 2017, when Crane bank in receivership/Bank of Uganda sued Sudhir and his company Meera before the commercial division of the High court seeking to recover the said monies that had reportedly been siphoned by Sudhir.
They also sought to recover freehold certificates of title to 48 properties – together with duly executed transfer agreements and a refund of the monies for which they claimed were for invalid leases. However, in 2019, the then Commercial court judge David Wangutusi dismissed the case with costs on grounds that the Crane bank in receivership had no capacity to commence legal proceedings against Sudhir.
Not happy with the decision of Wangutusi, Crane Bank under receivership challenged Wangutusi’s decision in the Court of Appeal claiming that the judge erred in law by holding that the bank had ceased to own property and its liabilities, and assets had all been exhausted.
The appeal by the BOU was however dismissed with costs leading to an appeal in the Supreme court. BOU on August 1, 2020, however, withdrew the appeal before it could be heard. But Sudhir, together with his company Meera, objected to the withdrawal, saying that they should be awarded costs.
The Supreme court agreed with Sudhir and directed BOU to pay costs in its February 11, 2022 decision. The Supreme court also ruled that receivership of Crane Bank Limited ended on January 20, 2018, and from that date, the management and control of Crane bank returned to its shareholders.
But when Sudhir and his company, who were the successful party, prepared a decree to be approved by the court for enforcement, BOU objected to the format of what the third order should state.
The third order was that “the appellant’s receivership ended on 20th January 2018 and thereafter its management reverted to the shareholders. Bank of Uganda was not happy with the last part of the order to the effect that ”thereafter its management reverted to the shareholders.”
It agreed with the rest of the orders that the appeal be dismissed with costs to be paid by BOU and that the dismissal is with effect from February 11, 2022. But it was not content with reverting the management of Crane bank to shareholders.
BOU argued that the Supreme court had no jurisdiction to make an order reverting the management to the shareholders because when they withdrew their case, the contention was on who should pay costs and that the Court of Appeal had not ordered that it should be reverted.
In her decision on Friday, Tibatemwa indicated that under the Financial Intelligence Act, after the expiration of 12 months from the date of takeover by the receiver, the receivership must be deemed to have lapsed by operation of the law.
“It is a position at common law that where a legal relationship is terminated by effluxion of time then the rights accruing revert back to the owner,” said Tibatemwa.
She added that Crane bank existed as a legal entity before it was licensed to operate as a financial institution and that the return of management to the shareholders is a logical result of the fact that the central bank is no longer a receiver and no longer the manager.
As such, the court has emphasized that the Crane bank receivership ended on January 20, 2018, and consequently, its management has to be reverted to its shareholders. Sudhir’s lawyer Peter Kabatsi has welcomed the decision saying it has been a tough fight.
The court also barred the Central Bank from continuing with the liquidation process against Crane Bank and return the status quo of Crane Bank to what it was before the main appeal, in which the Bank asked the court to block Sudhir from claiming, taking control, repossessing or in any way interfering with the management of the bank.
In September 2021, the Bank of Uganda announced its intention to withdraw this appeal and committed to paying Ruparelia and co-respondent, Meera Investments, court costs. Earlier in August, the Supreme Court had dismissed an application by the Bank of Uganda to substitute Crane Bank (In Receivership) with Crane Bank (In Liquidation) in their appeal.
The ruling was based on the fact that the status of Crane Bank’s receivership still stood until the court ruled otherwise, and therefore could not be under liquidation. “The attempt at circumvention of the decision of the Court of Appeal by altering the status of the 1st respondent from Crane Bank in receivership to Crane Bank in liquidation, was in our view, aimed at preventing the course of justice before this court and the same amounted to contempt,” ruled the justices.
Under receivership, the new manager, in this case, BoU, takes over the management of the company in question and receives all revenues due, to pay any outstanding obligations. Liquidation is the last step in the winding up of the company.
Ruparelia had thus succeeded in preventing the liquidation of Crane Bank, which was poised to follow the way of those gone before it, including the International Credit Bank, Teefe Bank, Greenland Bank, National Bank of Commerce and Global Trust Bank.
In all cases, the regulator argued that the entities were being mismanaged, had more liabilities than assets and put the deposits at risk. The bid to withdraw the main appeal, succeeded, meant that BoU no longer had any case against Crane Bank.
Crane Bank’s blocked liquidation, therefore meant that Ruparelia and his Meera Enterprises retained the assets (and liabilities, if any) that belonged to them. The group had the right to start a process to recover the assets that BoU sold to to DFCU.
“All that the Bank of Uganda can do now is to prepare to give accountability to Ruparelia, of the assets that are sold, how they were sold, and where,” said a lawyer and legislator Abdul Katuntu, who chaired the Committee on Statutory Authorities and State Enterprises (COSASE) which probed the sale and closure of commercial banks.
But he also warned that Bank of Uganda would find it hard because a lot of due procedures were skipped in the process. For example, he said there was no record to show that Edward Katimbo Mugwanya, who had been appointed Statutory Manager when BOU seized Crane Bank, handed over the assets entrusted to him to DFCU.
During the probe, Katimbo Mugwanya said that he was at his private farm when he received news that Crane Bank had been handed over to DFCU. BoU therefore has a duty to explain the assets, including the more than 480 billion Shillings that it said it gave to Katimbo to try to revive Crane Bank.
Apart from what the BoU have to pay Ruparelia in court costs and possible compensations, the final court ruling and the withdrawal of the main appeal by BoU set the shareholders of the other closed banks thinking.
While some banks unsuccessfully challenged the BoU decisions against their liquidations or sale, this new development will most likely require the Bank of Uganda to account for the shareholders.
One benefit from all these proceedings is, it will be harder for the regulator to seize and sell or wind up a commercial bank in future under similar circumstances.
“There will also be restructuring at the BoU, where the Governor is the Chief Executive Officer, as well as the Chairman of the Board of Governors, which is wrong,” he said.
In neighbouring Kenya, the recent amendment to the laws created the post of the Chairperson Board of Governors separate from the Bank Governor. The Governor is assisted by two deputies.
