BoU faces huge costs over Crane Bank-Sudhir case

Sudhir made two main arguments; first that Crane Bank Ltd in Receivership does not have the right or capacity to sue him, and two; that the case against Meera Investments Ltd is barred in law.

Based on the Aug.26 High Court ruling by Justice David Wangutusi, the head of the Commercial Court Division, Sudhir won the case.

The Bank of Uganda seizure of Crane Bank, which was the fourth largest bank by deposits in Uganda at that time, was seen as a bold move.

Earlier, the parliamentary committee on Commissions, Statutory Authorities and State Enterprises (COSASE), which investigated it, said in February 2019 that “the takeover of Crane Bank by Bank of Uganda was illegal.”

COSASE said in its report that Crank Bank had recovered from liquidity distress by January 01, 2019 – about a month before Bank of Uganda sold it to dfcu on January 25, 2017.

At the time of takeover, Central Bank Governor Emmanuel Tumusiime Mutebile said Crane Bank was systemically under-capitalised and posed a danger to financial sector stability.

But Sudhir, citing an Auditor General’s report queried the failure by the Central Bank to help revive his bank and instead sold it to dfcu for the paltry price of Shs200 billion which was the value of Crane Bank’s bad books.

Most commercial lawyers that The Independent spoke to that time said the Central Bank had the right to appeal but could incur even heavier costs in case it loses again. This has come to pass. Can BoU still dismiss the verdict by running to the Supreme Court?

Lawyers said the ruling set a precedent for future determination of rulings of similar nature.

Liquidated banks

BoU has so far taken over and liquidated seven commercial banks since 1993. These include: Teffe, Greenland Bank; formerly owned by the late Sulaiman Kigundu and  National Bank of Commerce (NBC), formerly owned by tycoon Amos Nzeyi, former Prime Minister, Amama Mbabazi among others. Other banks that were liquidated include; International Bank, formerly owned by the Emma Kato family, Cooperative Bank, Global Trust Bank, and Crane Bank.

Beyond the latest court verdict, commercial lawyers say, the whole debate or process about Crane Bank – BoU saga rotates around ensuring that financial institutions and the regulator uphold corporate governance principles that are important in growing businesses and in line with the laws of the land.

The BoU has to be cautious whenever it is taking over business of financial institutions to avoid occurrence of similar situations, lawyers say.

Other analysts, including Paul Lakuma, an economist and research fellow at the Economic Policy Research Centre at Makerere University said, BoU losing this case is part of the legal process.

“Losing happens but should not happen so frequently,” he said. He added that Central Banks have been sued elsewhere…which means we shouldnot ‘hang’ our central bank thinking it is weak.

“But there is a scope for improving the defense of the state,” he said. Going forward, he said, the internal lawyers of the central bank and other government institutions should be well motivated so they ‘die’ defending the state in such cases.

“If the internal lawyers are not motivated, they will let the institution down,” Lakuma said, “It is these internal lawyers that will work with external lawyers to put up a solid defense.”

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