Mbabazi Bank Partners Pile Pressure on BoU in Fresh Court Case

Shareholders in the defunct National Bank of Commerce (NBC) have taken Bank of Uganda and wealthy businessman Sudhir Ruparelia to court, challenging the circumstances under which the Bakiga-owned financial institution was taken over in 2012 and handed to Crane Bank.

The case is hinged on Bank of Uganda’s claims that Sudhir Ruparelia and Crane Bank shareholder Rasiklal Kantaria were involved in acts of fraud.

In their plaint filed on Tuesday, businessman Amos Nzeyi and NBC claim Bank of Uganda’s decision to take over their institution in 6 hours on 27 September 2012 was in  “bad faith” and  in “breach of its  non-delegable statutory duties simpliciter under the Financial Institutions Act 2004 (as amended) and is therefore null and void.”

Represented by lawyer Fred Muwema, the petitioners argue that by the time of “takeover, winding up, liquidation, closure and sale” of NBC by the Central Bank, it was not an “insolvent financial institution.”

The plaintiffs have since tendered in court the monitoring report for September 2012 issued by BoU as evidence that NBC was not insolvent.

They further submitted NBC had just undertaken an expansion programme approved by BoU where it had acquired and refurbished new Headquarters at Yusuf Lule Road in Kampala for about US$ 1.8 million.

NBC said it had also just re-capitalized to the tune of Shs. 7 billion as directed by BoU to meet “minimum capital requirements” but it was “suffering arbitrary civil penalties and a ban on borrowing and lending” imposed by the Central Bank.

Observers say the case could take a new twist with the ability of the Central Bank to properly supervise and support financial institutions being questioned.


Such revelations also have dire ramifications for the economy as it scares away potential Foreign Direct Investment and kills confidence in the country’s financial markets.

The IMF recently expressed reservations about the central bank’s supervision department, urging officials there to roll up their sleeves.

Lawyers argue the present suit is different in that it seeks to “enforce the commercial rights” of NBC and obtain the attendant remedies against the Defendants.


Nzeyi and NBC claim an injunction issued by the Constitutional Court on 28 September 2012, restraining BoU, its Officers, Agents or Servants from taking further steps in the winding up, liquidation and sale of the assets of NBC was ignored.

The petitioners contend that on October 1, 2012, Justine Bagyenda, BoU Executive Director Supervision, participated in the sale of some foreign currency deposits of NBC equivalent to Ushs 2.1bn whilst she was aware of the said Court order.

“Between 29 September 2012 and 1 October 2012, officials of the BoU who included Ben Sekabira and Godfrey .M. Yiga forcefully took securities from NBC whilst they were aware of the injunction,” reads part of the lawsuit.

Experts say NBC is trying to expose BoU’s weaknesses and double standards in supervising Uganda’s financial institutions.

For example, NBC says in the plaint that BoU was forced to intervene by injecting Shs. 400 billion of Public funds into Crane Bank to stave the systemic risk caused by the bank’s insolvency.

“The 1st Defendant (BoU) did not accord NBC the same multi-layer support and preferential treatment offered to the 2nd Defendant (Crane Bank) as it drastically closed and summarily sold NBC assets for lesser alleged non-compliance,” reads the plaint.

“The Bank was closed and sold in less than a day,” said an expert who preferred anonymity to speak freely, adding, “That’s a global record.”

The expert added: “BoU should have standard operating procedures for closing any bank, a forensic audit being one of the key elements. NBC was not subjected to a forensic audit.”

Nzeyi and NBC said they “take strong exception to the double standards and discrimination exhibited by BoU against NBC which was unjustly and illegally put to sudden death.”

The petitioners also submitted that “the fraud and irregularities complained of in Crane Bank were capable of being detected earlier or avoided altogether” had it not been for the for the central bank’s regulatory lapses.

Financial and legal experts told ChimpReports that, “As long as NBC can prove that BoU by error or commission knew about the alleged irregular ownership of Crane Bank, the subsequent sale and acquisition of NBC becomes null and void.”

BoU is accused of the following:

  1. Secretly negotiating in advance the sale of NBC assets to the Crane Bank before takeover.
  1. Secretly handling and concluding the sale and disposal of NBC assets to Crane Bank without complying with Public Procurement and Disposal of Public Assets Act No. 1/2003.
  1. Unjustly determining that the assets of NBC be sold to Crane Bank before appointing an independent Auditor to take an inventory of the assets and liabilities of NBC as required by the FIA 2004.
  1. Unlawfully and intentionally selling NBC’s secured performing loans to Crane Bank at 70% of book value thereby intentionally causing a loss to NBC.
  1. Taking over management of NBC and unjustifiably failing to accord it an opportunity to come into compliance with prudential standards as required by the FIA 2004.
  1. Illegally imposing civil penalties and banning NBC from doing banking business which drained its capital and led to its closure and sale.
  1. Illegally taking over, winding up, liquidating, closing and selling NBC assets to Crane Bank in just 6 hours in violation of the FIA 2004.
  1. Failing to perform or breached its statutory duties spelt out in the Bank of Uganda Act 1993 and Financial Institutions Act 2004.

The Central Bank deputy Governor Louis Kasekende said then that, “This action has been taken because bank of Uganda has determined that the continuation of NBC’s activities is detrimental to the interests of its depositors.”

National Bank of Commerce, formerly known as Kigezi Bank of Commerce was started in 1991 as a public bank based in Kabale to provide banking services and inexpensive loans to the people in the south-western sub-region of Kigezi.

Its closure came against the backdrop of reports that Amama Mbabazi, who was a shareholder in NBC, was mobilising resources to contest for president.


Meanwhile, the petitioners say BoU failed to effectively apply its supervision, inspection and intervention powers under S.79 & 82 of the Financial Institutions Act 2004 (as amended) and S.4 (j) of the Bank of Uganda Act 1993 which led to the closure and illegal sale of NBC.

The Central Bank is also blamed for failure to cause effective audits on Crane Bank; failure to appoint Board Observers to the Central Bank and ensure good governance which would have avoided the sale; failure to appoint an Auditor to make an inventory of assets and liabilities of NBC and submit a report after takeover.

“The whole process of takeover, winding up, liquidation, closure and sale of NBC assets and liabilities which was executed as a same day transaction was motivated by misfeasance in public office by Directors and Officers of the 1st Defendant (BoU),” reads the petition.

“BoU Officers who were acting within the course of their employment knowingly abused their public power or authority with the conscious and reckless indifference and knowledge to the reality of harming the Plaintiffs interests.”

Nzeyi and NBC say BoU is therefore “vicariously liable for the above acts and/or omissions of it’s said Directors and officers as it knew that they were abusing its Public power and authority exercised pursuant to the Bank of Uganda Act and Financial Institutions Act 2004 but was also recklessly indifferent as to the limits to or restraints upon that power and authority.”

The Plaintiffs now want a declaration that the purported winding up and liquidation of NBC by the 1st Defendant was/is irregular, illegal, null and void.

They also want court to rule that BoU failed to effectively apply the fit and proper test in respect to the control and ownership of Crane Bank and that the central bank furnishes an inventory of assets and liabilities of NBC at the time of takeover.

They also want proof of tax compliance in the transaction of sale of NBC assets, forensic investigation report together with the final liquidation report.

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