UGANDA, Kampala | Real Muloodi News | On Friday February 11, 2022, the Supreme Court declared that Crane Bank ownership reverts to Real Muloodi Sudhir Ruparelia, putting an end to a five-year legal fight followed by the bank’s closure. The court also ordered the central bank to pay all legal fees immediately, beginning with the Commercial Division of the High Court.
The case filed by the Bank of Uganda/Crane Bank (in Receivership) against Sudhir Ruparelia and Meera Investments Ltd was declared unconstitutional, officially ending a long-running legal dispute between Sudhir and the bank regulator that began in 2017.
The ruling also means that real estate billionaire Sudhir will not pay the USh397 billion the Bank of Uganda demanded.
In the judgement delivered by Supreme Court Registrar Mary Babirye on the authority of five Supreme Court Judges, Opio Aweri, Faith Mwondha, Lillian Tibatemwa, Ezekiel Muhanguzi, and Percy Night Tuhaise, the court found that Crane Bank Limited’s Receivership had ended on January 20, 2018.
Crane Bank’s management and control were to be reverted to its shareholders as of that date.
After the decision was announced, Sudhir, who attended the court session in Kampala, said “Bank of Uganda stole my bank.” Adding, “They have to pay costs of the suit right from the Commercial Court [High Court] to the Supreme Court.”
Sudhir’s lawyer, Peter Kabatsi, applauded the ruling, noting his client has spent a proportionate amount of time and money over the previous five years pursuing justice.
The Background of the Case
In September 2016, the former Crane Bank was placed under statutory management by Bank of Uganda (BOU) following a damning audit report that revealed insufficient capital levels, shrinking liquidity ratios, surging loan default levels and gross mismanagement, among others.
For example, the bank’s loan default ratio was estimated at 30 percent, a figure higher than the overall industry loan default rate that stood at less than 10 percent during the same period.
Signs of financial distress by the collapsed lender were exhibited by its emergency financial support request of USh147 billion (US$41 million) made to the Central Bank almost a month before the statutory intervention decision took place.
After four months of statutory management actions, BOU closed Crane Bank Limited and transferred certain assets and customer deposits belonging to the former Bank to DFCU Bank Limited in a controversial transaction valued at USh200 billion (US$56 million) that was concluded in January 2017.
At that time, the late Central Bank governor, Emmanuel Tumusiime Mutebile stated that the bank’s acquisition was motivated by the undercapitalised institution’s systematic nature to avoid financial sector instability.
The Central Bank and Crane Bank in Receivership subsequently sued Sudhir Ruparelia over what it said was massive fraud committed against the failed bank during 2017. BOU accused Ruparelia of siphoning USh397 billion (US$111.8 million) in suspicious purchases and land title transfers from the failed bank over a three year period. Ruparelia owned less than 50 percent shares in the former Crane Bank Limited prior its collapse, according to previous court records.
The bank requested the return of funds allegedly misused by Sudhir as a director and shareholder, and the delivery of freehold certificates of title to 48 properties with validly completed transfer documents in its favour.
Sudhir and Meera opposed the suit’s competence, claiming that the funds he was accused of siphoning did not reach Crane Bank, and the Bank of Uganda’s Legal Department extended the case to continue benefitting from legal expenses.
However, the ruling judge David Wangutusi rejected BOU’s lawsuit because Crane Bank (under Receivership) had lost its ability to sue or be sued, making the complaint null and void.
The bank immediately appealed the dismissal to the Court of Appeal. The appellate court considered the appeal, which dismissed it with costs.
The bank then filed an appeal (in the same court) against the ruling on 11 grounds. The appellant (bank) requested that the appeal be permitted, the Court of Appeal’s decision be reversed, and a different judge heard the High Court case.
On September 15, 2021, before the appeal could be scheduled for the hearing, the bank filed a notice of withdrawal.
Sudhir’s attorneys protested after being issued the notice of withdrawal, arguing that the appeal should be rejected, the lower courts’ rulings upheld, and the Bank of Uganda to pay the lower courts’ and the Supreme Court’s expenses.
The Supreme Court judges made a final judgement on the subject “fully considering the record of appeal, submissions by the respective counsel, the law and the authorities cited in their entirety”.
The top court then ruled that: “This appeal is dismissed with costs to the respondents in the terms found by the lower courts. The dismissal of the instant appeal takes effect as of the date of endorsement of this ruling [February 11, 2022].”
How the Court’s Ruling for Crane Bank Offers Hope and Protection for Other Banks
The outcome of this case could signal an end to years of regulatory impunity exhibited by BOU against struggling banks; a prominent feature documented in a report issued by the Parliamentary Committee on Statutory Agencies, Commissions and Enterprises (COSASE) in 2020.
According to the COSASE report, when Crane Bank was liquidated, its liquidity had stabilised. As such, there was no need to hurry receivership and later liquidation. Therefore COSASE deemed the Bank of Uganda’s liquidation of Crane Bank unlawful.
The committee suggested that comprehensive strategies for restoration be exhausted before adopting the severest option of dissolving a financial institution and laying off it’s employees.
Unfortunately, over 500 young people lost their employment at Crane Bank.
The Supreme Court appeal verdict is significant for the banking industry, because BoU will do due research and exercise extreme caution before closing any firm next time.
According to Ben Ssebuguzi, a top foreign journalist, even the bank’s governor’s abilities would be limited. The regulator bank will no longer use sections 99 (1) and (2) of the Financial Institutions Act of 2004 to target other banks.
Ben Ssebuguzi says: “This ruling is a good signal to all investors that their investment can be safe because the judicial system is there in case of any malpractice. Youths should now brace themselves and start applying for jobs if the bank is reopened.”
He adds: “All the private sector borrowers who used to access affordable and first service should remain positive to transact again. This is a clear win for all Ugandans.”
The legal judgement is also likely to influence proceedings in a recent case filed by the former owners of Crane Bank Limited against DFCU Bank in a European Court last year. This legal action serves as an escalation in a long fight waged by owners of the collapsed bank against the industry regulator and may unravel more details surrounding the controversial sale of selected Crane bank assets and deposits to DFCU Bank Limited, local observers say.
READ MORE LIKE THIS: