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Exclusive: Supreme Court Allows BoU to Liquidate Crane Bank Assets as Sudhir Ruparelia Loses Round One

By ChimpReports Investigations Team

Uganda’s Supreme Court has given Bank of Uganda a green light to continue with liquidation of Crane Bank assets after the former proprietor Sudhir Ruparelia lost an application seeking an injunction on the process.

Supreme Court Judge Mike Chibita determined that Sudhir “failed to advance special reasons to warrant this court’s invocation of its discretion under rule 2(2) to grant the relief sought for, which was alien to our law. Indeed, there is no single law that provides for an interim interim application and or/order.”

In the result, ruled Chibita, “I find that the application is not properly before this court. I would, therefore, and hereby, dismiss it.”

Bank of Uganda (BoU), which took over management of Crane Bank Ltd. (CBL) on October 20, 2016 and subsequently progressed it into receivership on January 24, 2017, recently announced the commencement of the liquidation of its assets and winding up of its affairs.

BOU’s move appears to have been precipitated by Sudhir’s lawyers’ (Kampala Associated Advocates) letter to the Registrar Uganda Registration Services Bureau (URSB) dated September 28, 2020, informing him that receivership of Crane Bank has ended on January 20, 2018.

Sudhir’s lawyers quietly told then registrar, Twebaze Bemanya that “BoU no longer had any legal authority over the affairs of Crane Bank Ltd and that the board of Directors and shareholders of Crane Bank are back in full control of the company and its affairs.” Interestingly, the letter required the registrar to adjust Crane Bank’s official records accordingly.

Pursuant to that letter, Crane Bank (in receivership – BoU) rushed to the Supreme Court for orders that Sudhir and his agents be restrained from claiming, taking control, repossessing or in any way interfering with the management of Crane Bank it it’s receiver pending determination of that main suit.

Reasons advanced by BOU’s legal team to proceed with the liquidation process

But Supreme Court Justice Mugambe dismissed BOU’s application, saying there was no threat of execution.

Later that day, in exercise of its powers under section 99 (1) & (2) of the Financial Institutions Act, 2004, BoU now placed CBL under liquidation and ordered the winding up of its affairs.

Sudhir protested BOU’s move and sought an injunction on the liquidation process, an application which Justice Chibita has now dismissed.

This means the Central Bank, the liquidator of CBL, can go ahead with the process.

Chibita on December 22 ruled that it was “inconceivable why the applicant (Sudhir) would ask this Court to aid him to stat execution well knowing that he doesn’t not wish to have the decisions of the Court of Appeal reversed.”

“I find that the justice of this case would permit the invocation of the court’s wide discretion to disallow the application in order to prevent abuse of the Court process,” he emphasised.

Part of Justice Chibita’s ruling

The Central Bank recently informed all borrowers of Crane Bank, whose loans were transferred to DFCU Bank under the purchase of assets and assumption of liabilities agreement between CBL (In Receivership) and DFCU Bank Ltd., must continue to service their loan obligations with DFCU Bank Ltd.

All other borrowers of CBL, whose loans were not transferred to DFCU Bank, must service their loans by paying into the designated collection accounts at Bank of Uganda.

Crane Bank borrowers, whose loans were not transferred to DFCU Bank Ltd., can access a statement of their indebtedness from the office of the Director Commercial Banking at Bank of Uganda headquarters.

BoU said creditors of Crane Bank will be notified of the procedure for presentation of their claims to the liquidator.

The judgement is a big blow to Sudhir’s plans to retake Crane Bank.

It also raises hopes that BoU will be able to convince the Supreme Court to compel the businessman to pay over $60m which he reportedly obtained from Crane Bank fraudulently.

BoU placed Crane Bank Ltd (In Receivership) [“Crane Bank”] under Statutory Management on 20th October 2016.

Background

This was after discovering that Crane Bank had “significant and increasing liquidity problems” that could not be resolved without the Central Bank’s intervention given that Crane Bank had failed to obtain credit from anywhere else.

An inventory by external auditors found that the assets of Crane Bank were “significantly less than its liabilities.”

In order to protect the financial system and prevent loss to the depositors of Crane Bank, Bank of Uganda had to spend public funds in the excess of Shs 300bn to pay Crane Bank’s depositors.

This is part of the money BoU wants Sudhir to pay back.

A subsequent forensic investigation as to why Crane Bank became insolvent found a number of wrongful and irregular activities linked to Sudhir Ruparelia and Meera Investments Ltd. These findings formed the basis of the claims in the lawsuit by Crane Bank.

BoU said the suit was necessary for recovery of the taxpayers’ money used to pay depositors’ funds as well as the other liabilities of Crane Bank.

BoU set about resolving the affairs of Crane Bank in a manner that would safeguard depositors, preserve the safety of the financial system, and restore the taxpayers’ money that had been deployed to prevent loss to depositors and a potential financial crisis.

In this effort, Sudhir Ruparelia signed a Settlement and Release Agreement with BoU on 20 March 2017 in which he undertook to pay a sum of USD 60 million and to return land titles that had been irregularly taken from Crane Bank, which is the actual owner of the branches on which its branch network sat across the country.

Under this agreement Sudhir Ruparelia only paid USD 8,000,000 and later refused to comply with his undertakings.

It was at this point that BoU as receiver of Crane Bank instituted a High Court case H.C.C.S 493 of 2017 against Sudhir Ruparelia and Meera Investments Ltd.

The main claims in this suit based on the findings of the forensic investigation are that Sudhir Ruparelia illegally and secretly owned 100% shareholding in Crane Bank in breach of the Financial Institutions Act, 2004.

Bank of Uganda also said in court documents that using that position of control, Sudhir Ruparelia, who doubles as Nepal’s Honorary Consul to Uganda, wrongfully and illegally extracted from Crane Bank amounts totalling to USD 92,830,172 and Shs 8,277,000,000.

Sudhir Ruparelia was further accused of transferring freehold property beneficially owned by Crane Bank into the names of Meera Investments Ltd in which he and his family are the majority shareholders, without giving value to Crane Bank and rendering the Bank a tenant on its own property with a liability to pay rent to Meera Investments Ltd.

In response, Sudhir Ruparelia and Meera Investments Ltd filed a defence and later an application arguing that Crane Bank had no capacity to sue them while in receivership and that upon transfer of some of its assets to DFCU Bank, Crane Bank ceased to exist.

Both the Justice at the High Court and those at the Court of Appeal upheld these arguments.

Bank of Uganda said in submissions before the Supreme Court that receivership does not take away the corporate personality of a company which includes the right to trace and recover assets and the right to sue for those assets.

Neither the High Court nor the Court of Appeal has yet considered or taken a decision on the claims for wrongful and illegal extraction of funds from Crane Bank as claimed in the main suit.

The implications of these judgments are that a Receiver of a financial institution/bank cannot pursue or seek recovery of assets of a bank in receivership by way of legal proceedings.

This renders the principle of tracing and preserving assets of an insolvent bank during statutory management and receivership futile.

The judgements also set a precedent that limits the Central Bank’s capacity to resolve banks in a manner that ensures accountability for mismanagement of depositor funds and promotes good corporate governance in the banking industry.

For these reasons, BoU as receiver of Crane Bank was dissatisfied with the rulings of both the High Court and the Court of Appeal and took a decision to appeal to the Supreme Court in addition to pursuit of other legal recovery options.

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