The Uganda Bankers Association which brings together 35 financial institutions in the country has joined Diamond Trust Banks (Uganda) and (Kenya) to appeal and stay execution of the orders of the High Court in a case that was filed by Kampala businessman Hamis kiggundu.
The Uganda Bankers Association that includes all the Tier I Commercial Banks, the Development Banks and Tier II & III (Micro Finance & Deposit taking Institutions) supervised by Bank of Uganda have also resolved to call upon the Central Bank of Uganda to pronounce itself on matter, according to a statement which was issued by the association and signed by their chairman, Mr. Mathias Katamba and Executive director Wilbrod Hamphreys Owor.
Diamond Trust Bank Uganda and Diamond Trust Bank Kenya, have also in a joint statement said they are both “aggrieved and dissatisfied” with the High Court decision in which court ruled that city businessman Hamis Kiggundu does not owe the banks money in billions of shillings taken loan facilities.
Justice Henry Peter Adonyo of the Commercial Court ruled that DTB Bank Kenya, did not have a license to conduct banking business in Uganda and therefore the credit facilities it extended to Ham’s business were contrary to the Financial Institutions Act 2004 (as amended) and as such were illegal and unenforceable.
The Court thus ruled that the businessman and his two companies, Ham Enterprises Ltd and Kiggs International (U) Ltd did not owe the two bank’s any money. The judge also went ahead and ordered the two banks to refund to the businessman UGX 34,295,951,553/= and USD 23, 467, 670.61, money that was allegedly -unlawfully deducted from the businessman ‘s accounts .Court further awarded him interest of 8% per annum from the date the suit was filed, an amount estimated to total to UGX. 9,600,000,000/=.
The judge also ordered that the banks to unconditionally release the titles of the properties mortgaged by the businessman. Court also, among other orders issued a permanent injunction against the banks from enforcing the mortgages.
Background to the case ;
The facts of the case are that sometime in 2019 the two banks commenced foreclosure proceedings against Ham Enterprises Limited and Kiggs International (U) Ltd for the recovery of outstanding loans in the sum of about USD$ 10,000,000 (UGX.36.9 billion). Mr. Kiggundu, then filed HCCS No.43 of 2020 in January 2020 claiming that he had repaid all the loans and therefore the banks had no claims against him or any of his businesses.
He demanded the release of his collateral notably land and properties comprised in Kyadondo Block 248 Plot 328 land at Kawuku, FRV 1533 Folio 3 Plot 26 – 38 Victoria Crescent II Kyadondo and LRV 3716 Folio 10 Plot 923 Block 9 land at Makerere Hill Road. He also alleged that the banks had wrongfully withdrawn the sums of UGX 34,295,951,553/= and USD 23,467,670.61 an estimated total 87bn from their accounts.
The banks contested the suit claims and filed a joint defence saying that the loans had not been settled which is why they were foreclosing the properties. The banks also denied ever wrongly withdrawing any monies from any of Ham’s accounts.
On 28th August 2020 Mr. Kiggundu filed Miscellaneous Application No 654 of 2020, challenging the legality of the loans extended to him DTB Kenya claiming that the credit facilities extended to him by DTB Kenya were unlawful since DTB Kenya didn’t have a license to carry out banking business in Uganda and as such DTB Kenya couldn’t recover the loan facility nor foreclose the collateral pledged. He, also argued that it was illegal and unethical for DTB Uganda to have facilitated DTB Kenya to conduct illegal financial institution business in Uganda by being appointed agent bank as well as security agent of DTB Kenya.
The two banks in their defence, maintained that the credit facilities extended by DTB Kenya, were lawfully obtained in Kenya and not in Uganda as claimed by Mr. Kiggundu and are therefore recoverable and enforceable. They further submitted that Kiggundu had by free and willful consent pledged securities within the provisions of the law and therefore the banks were legally right to foreclosegiven that he had defaulted on the payment plan.
Kiggundu refuses audit that would prove his claims
On 31st August 2020, Hon Justice Henry Peter Adonyo, by consent of the two parties, ordered that a court-appointed auditor will be found to carry out audit and reconciliation on Mr. Kiggundu’s accounts to determine if indeed he had repaid the banks and whether there was money unlawfully deducted from the businessman’s accounts. The trial Judge ordered that an independent auditor be appointed by the Institute of Certified Accounts of Uganda (ICPAU). ICPAU went on to appoint BDO Uganda, which part of BDO Global, one of the 5 largest accounting firms in the world to do audits.
However , before the audits could be carried out , Mr. Kiggundu, on 16th September 2020, filed another matter for determination in Miscellaneous Application No 729 of 2020, seeking to stay the appointment of the auditor and the audit itself until court pronounced itself on whether the said loans from DTB Kenya were illegal.
On 30th September 2020, Justice Adonyo ruled in favour of Mr. Kiggundu and stayed the audit and reconciliation of Ham’s accounts.
Uganda Bankers Association reacts
The Uganda Bankers Association says that as a result of the judgement and its implications, the syndicated portfolio currently at risk seated with commercial banks is over U.Shs 5.7 trillion (1.53 billion USD) of running facilities across various sectors including real estate, road construction, energy covering hydro electric power, oil & gas and manufacturing among others.
The above figure does not include pipeline transactions that were still being processed and have all been halted since the judgement was made . Also, the figures exclude syndicated lending to Government of Uganda who is the largest beneficiary of syndicated lending for various development programmes in the country
The bankers say that the judgement has sent shockwaves to the banks’ international partner agencies and lenders and would jeopardize the country as an investment destination.
They further argue that judgement sends a wrong signal to other borrowers with foul intention of not paying back their loans.