KAMPALA – Bank of Uganda (BoU) has announced that it will appeal the Court of Appeal’s dismissal of the case filed by Crane Bank Limited (in Receivership) vs. Sudhir Ruparelia and Meera Investments Limited in the Supreme Court.
On June 23, 2020, the Court of Appeal upheld the judgment of Commercial Court in an application filed by BoU seeking a refund of UGX 397 billion from Sudhir which he allegedly pulled out from Crane Bank. Justice David Wangutusi of Commercial Court in August 2019 dismissed a case in which BoU claimed that Ruparelia and his Meera Investments Ltd fleeced his own Crane Bank Ltd (now in receivership) of UGX397 billion.
But on Tuesday, June 30, BoU insisted 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.
Below is the BoU statement
In exercise of its 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. This 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. These findings form the basis of the claims in the lawsuit by Crane Bank. 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 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. The main claims in this suit based on the findings of the forensic investigation are that; i. Sudhir Ruparelia illegally and secretly owned 100% shareholding in Crane Bank in breach of the Financial Institutions Act, 2004. ii. Using that position of control, Sudhir Ruparelia wrongfully and illegally extracted from Crane Bank amounts totalling to USD 92,830,172 and UGX 8,277,000,000. iii. 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. 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 maintains 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 public is also invited to note that 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 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. BoU wishes to reassure the public that it is committed to pursuing this matter to its logical conclusion.