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BoU, DFCU floor Sudhir in UK Court

The High Court of Justice of England and Wales has exonerated Bank of Uganda (BoU) dfcu bank and okayed the liquidation of Crane Bank Ltd.

Crane Bank Limited (CBL) was, until 2016, one of Uganda’s largest commercial banks. It was regulated by Uganda’s central bank, the Bank of Uganda (BoU). In 2016-2017, the BoU, in the exercise of its statutory and regulatory powers, took over the management of CBL, then closed it and sold off some of its assets and liabilities to the first defendant (Crane Bank).

In 2020, Sudhir Ruparelia, CBL and five others dragged DFCU Bank Limited, DFCU Limited, Jimmy Mugerwa and 12 others to the High Court of Justice Business and Property Courts of England and Wales Commercial Court contending the sale of CBL.

They contended that CBL’s assets and liabilities were sold at a “gross” undervalue and in furtherance of a corrupt scheme carried by the BoU using its statutory and regulatory powers.

 The claimants alleged that the defendants participated in an unlawful means conspiracy and provided dishonest assistance in breach of trust and/or of fiduciary duty. In addition, the claimants alleged unconscionable receipt against the first defendant (Crane Bank). The claims are quantified at over £170m (Shs 629.7billion). The claimants accept that their claims are all governed by Ugandan law.

The claimants alleged that the BoU exercised its statutory powers corruptly so as to deprive CBL of its or most of its assets.

Allegedly corrupt scheme

The claimants alleged that notwithstanding CBL’s strong financial position and despite having approved CBL’s audited accounts only three months earlier, in July 2016 the BoU asserted that CBL was suffering from a serious capital deficit. The BoU then took a series of actions which ultimately led to CBL being placed into receivership immediately prior to, and in order to enable, the sale of some of its assets and some of its liabilities to DFCU Bank under a Purchase of Assets and Assumption of Liabilities Agreement dated 25 January 2017 (the “P&A Agreement”).

The execution of the P&A Agreement, and the steps taken thereafter to put it into effect, were the culmination of the Corrupt Scheme. The P&A Agreement represented a sale of CBL’s assets and liabilities at a gross undervalue and followed a sham bidding process orchestrated by the BoU, by its officers and/or agents, in breach of trust and of its and/or their fiduciary duties to CBL and of the provisions of the FIA and in abuse of office.

They claimed that the BoU ordered CBL to raise capital, withdrew authorization from CBL to carry on financial business when it did not or could not raise the additional capital, directed it on how to manage its financial affairs, placed CBL into statutory management, and finally transferred CBL from statutory management to receivership and after which the impugned sale took place.

It is alleged that the BoU exercised its powers first to weaken CBL, then to take over its management and then to close it and sell its assets and did so unlawfully as part of a corrupt scheme.

In response, the applicants said the BoU is part of the executive of the Ugandan state, and the claim against them in unlawful means conspiracy, dishonest assistance and the knowing receipt is for alleged wrongs by the BoU against CBL in the exercise by it of its statutory powers and regulatory functions in its own jurisdiction and the claim against them cannot succeed unless this court concludes that the BoU’s acts were unlawful as a matter of Ugandan law.

In his ruling delivered on October 7, 2022, Lord Pelling QC sitting in London exonerated both dfcu and BoU of wrongdoing noting that CBL was suffering from a serious capital deficit.

Relying on Article 162(2) of the Constitution, by which the BoU is required to “… conform to this Constitution but shall not be subject to the direction or control of any person or authority, Court ruled that the BoU enjoys operational independence is not material for present purposes because the powers that it is alleged were exercised unlawfully were powers conferred on it for the purpose of carrying out what are governmental functions on behalf of the Ugandan state within Uganda’s territorial borders

He cleared dfcu on the alleged connivance to buy CBL assets at an undervalued rate.

“The applicants’ applications succeed on the foreign Act of State issue. In consequence, it is unnecessary for me to decide on the remaining issues. Had I concluded that the foreign Act of State issue should be resolved in favor of the claimants, I would have dismissed the applications made by reference to the other issues that arise, for the reasons I have summarized above,” he ruled.

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