The Central Bank of Uganda is set to appeal the recent dismissal by Court of Appeal of the case that Crane Bank (under receivership by Bank of Uganda) had filed against business mogul Sudhir Ruparelia and Meera Investments Limited.
Bank of Uganda had sued Sudhir (former owner of Crane Bank) and Meera Investments Limited accusing them of allegedly fleecing the defunct Crane Bank Limited (CBL) of Shs397bn and sought that this money be refunded.
In their ruling, three Justices unanimously noted that after a careful perusal of the evidence, submitted they found no misconduct against Sudhir that would warrant litigation and henceforth, ordered Bank of Uganda to pay costs incurred by the businessman to defend himself.
The ruling followed a defense filed by Sudhir Ruparelia and Meera Investments Ltd and 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.
However, in a statement on Tuesday, Central Bank Governor Emmanuel Tumusiime Mutebile said 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.
The Central Bank also says 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,” Mutebile said.
This, Mutebile says, 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, he added.
“For these reasons, BoU as receiver of Crane Bank is dissatisfied with the rulings of both the High Court and the Court of Appeal and has taken a decision to appeal to the Supreme Court in addition to pursuit of other legal recovery options,” Mutebile said.
In exercise of BOU’s powers under sections 87(3), 88(1)(a)&(b) of the Financial Institutions Act, 2004, BoU placed Crane Bank Ltd (In Receivership) [“Crane Bank”] under Statutory Management on 20th October 2016.
Mutebile says the decision was necessary upon 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 to pay Crane Bank’s depositors”.
“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”.
It is upon the basis of the findings of the investigation, Mutebile said, that the lawsuit by Crane Bank was hinged.
BOU says Sudhir Ruparelia illegally and secretly owned 100% shareholding in Crane Bank in breach of the Financial Institutions Act, 2004.
It further adds that using that position of control, Sudhir wrongfully and illegally extracted from Crane Bank amounts totalling to USD 92.8m and Shs 8.2bn.
“Sudhir Ruparelia transferred 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”.
“The suit was necessary for recovery of the taxpayers’ money used to pay depositors’ funds as well as the other liabilities of Crane Bank”.
The Governor adds that 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 regrettably 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.