Tirupati Development (U) Limited has floored KCB Bank in a case involving UGX 26 Billion ($7 million) loan.
Genesis
Last year, Tirupati Development Uganda Limited dragged Bank of Uganda (1st defendant), KCB Bank Uganda Limited, (2nd defendant), KCB Bank Kenya Limited, and Financial Intelligence Authority (FIA) – 4th defendant to court over a number of grievances including breach of contract, negligence, money laundering, fraud and conspiracy to defraud, among others.
According to documents in the civil division of the High Court in Kampala, in July 2021, KCB Bank Uganda and KCB Bank Kenya accepted to advance a syndicated loan to Tirupati for a total of shs26 billion($7 million) and at the time, the latter held one account with KCB Uganda
Both parties agreed that UGX 18.09billion ($5.14million) be disbursed to Tirupati’s account between July 2021 and August 2013, a further shs5.6bn($1.5million) between September 2013 and August 2014 whereas a final disbursement of shs972milion($276,000) was to be effected in September 2014.
Tirupati said that the two banks had agreed to disburse a total of shs26 billion ($7 million), but only $ 6.99 million was disbursed.
Tirupati however said the two banks breached the contract they had entered with him.
“They failed to disburse the total agreed amount of USD 7,000,000. They debited the plaintiff’s account with loan negotiation fees above the agreed amount. They failed and willfully refused to provide the plaintiff(Tirupati) with a breakdown of how the loan negotiation amount charged was arrived at,” the court documents say.
Tirupati also accused the two banks of debiting his accounts to meet the costs of a court case yet parties had agreed that each bears their own costs in respect to a consent agreement that they entered into in 2017.
Breach of fiduciary duty
Tirupati also accused the two banks of opening and operating two separate dollar loan accounts in the name of Tirupati Development Uganda Limited without the company’s knowledge and consent in August 2016 and two other new accounts in January 2017.
Tirupati said when he complained about the several suspicious transactions on its current and loan accounts, the two banks failed to provide an explanation for the “suspicious” transactions.
“The plaintiffs(Tirupati) also made demands for a reconciliation of accounts, clarity on the status of their loan repayments, and requests for the issuance of bank statements. None of these requests were honoured. This inevitably led to the plaintiff’s failure to meet her loan obligations. The Plaintiffs will aver and contend that the 2nd and 3rd defendants breached their fiduciary duty towards the plaintiff,” the court documents said.
According to Tirupati, the banks didn’t act in good faith and for his best interest but for purposes collateral to the agreement between both parties.
“They acted for private gain by operating unexplained suspicious transactions on the Plaintiff’s current and loan accounts. Plaintiff will aver and contend, as is pleaded further below, that these activities were illegal. Further, that these transactions also constituted a conflict of interest between the interests of the plaintiff and those of the 2nd and 3rd defendant.”
“They did not act in the Plaintiff’s best interests when they failed to offer a clear explanation of the suspicious transactions which amounted to a breach of fiduciary duty, and routinely failed to provide key information when requested, or provided contradicting information in several instances.”
Tirupati said as a result, the company engaged accountants and external auditors to investigate and carry out a forensic audit of the transactions on its bank accounts with the two banks and that the audit report indicated the two banks frequently charged the operations account for Tirupati as loan repayment but reflected fewer figures as having been paid towards the loan.
“The auditors also observed that several unknown unauthorised top-up loans had been given by the 2nd defendant and purportedly used to pay off loans to the 2nd defendant on the same date. Further that these as well as other numerous irregularities had the resultant effect of increasing the loan balances due, which coupled with the Defendants’ refusal to provide the Plaintiff timely statements and explanations for suspicious transactions, made loan/debt scheduling an impossibility,” the court documents read.
Declarations
Tirupati wanted the court to declare that the actions of KCB amounted to a breach of contract, fraud and failure to manage the plaintiff’s accounts.
“The plaintiff seeks a declaration that the 2nd and 3rd defendants failed to properly manage the risk of financial crime exposure to the plaintiff when they wantonly occasioned the impugned transactions on the Plaintiff’s accounts and in the plaintiff’s name,” court documents said.
In the case in which Bank of Uganda and Finance Intelligence Authority have also been listed as defendants, Tirupati wanted the court to declare that BoU failed in its regulatory duty when it failed to detect KCB’s misfeasance in not reporting accurately the status of Tirupati’s loan account status.
Tirupati also wanted court to declare that KCB misappropriated their funds to the tune of shs35 billion ($995,466) and that the same should be returned to Tirupati in special damages.
Tirupati also wanted court to order that the business is entitled to the return of 20 certificates of title unlawfully held by Bank of Uganda.
The development comes on the backdrop of a September, 17, 2021 ruling by Justice David Wangutusi of the Commercial Court in which he dismissed an application by Tirupati to set aside the consent judgement earlier entered by both parties.
Ruling
Delivering the ruling on the matter recently, Justice Musa Ssekaana, Court argued that the question of privacy is addressed in Article 12 of the Universal Declaration of Human Rights of 1948 and Article 41 of the Constitution of the Republic of Uganda.
”This application partially succeeds to the extent that the respondents should avail the applicant the following documents,” said Ssekaana in his May 5, 2023 ruling. The documents Court ordered KCB to avail Tirupati include;
(a) The loan transaction and loan account origination, negotiation, approval, processing, key facts documents, management, and closure in respect of the following accounts:
- Loan accounts No. 1059906732 with the 2nd respondent and loan account number 215022605732 with the 1st respondent.
- US dollar current account No. 22900351628 in the applicant’s name opened by the 1st respondent.
III. USD Account Number 2201449317 in the applicant’s name with the 1st respondent.
- Uganda shillings account number 2201449287 in the applicant’s name with the 1st respondent.
“The costs shall be in the cause,” he ordered. This means that the costs of the preliminary hearing will be paid by the party that ultimately loses the case.
