THE SUPREME COURT JUDGEMENT IN SCCA NO.07 OF 2020: CRANE BANK LTD (IN RECEIVERSHIP) VS SUDHIR RUPARELIA AND MEERA INVESTMENTS LTD ONLY AWARDED COSTS BUT NOT THE BANK

On the 11th February 2022, the country was hit unexpectedly with the decision of the Supreme Court which suggested that the management of Crane Bank in Receivership reverts to the shareholders.

There was wide spread media coverage on the above subject with several televisions and Newspapers reporting that the Supreme Court had ordered Bank of Uganda to return the Bank back to its shareholders.

The said conclusion in my view was founded on the fact that the receivership of Crane Bank in Receivership was deemed to have ended on the 20th January 2018.

Be that as it may, I find it necessary to highlight the material facts surrounding this case and upon which the above conclusion is premised.

On the 20th October 2016, Bank of Uganda (hereinafter referred to as ?BoU?) in exercise of its statutory powers took over the management of Crane Bank Limited (hereinafter referred to as CBL) pursuant to Sections 87 (3) and 88 (1) (a & b) of the Finance Institutions Act, and on the 20th January 2017, BoU placed it under receivership.

On the 30th June 2017, CBL (In Receivership) brought a suit against Sudhir Ruparelia (hereinafter referred to as SR) and Meera Investments vide HCCS No. 493 of 2017 wherein it interalia sought for recovery of over US $ 95 million being monies allegedly extracted by SR from the defunct Crane Bank.

SR together with Meera Investments Limited through their lawyers M/s KAA opposed this suit by way of a Joint Written Statement of Defence where they interalia contended that the suit was bad in law and an abuse of court process. They also sought by way of counterclaim damages of US $8 million arising from CBL (In receivership) breach of Confidential Settlement and Release Agreement among others.

SR vide Miscellaneous Application No. 1063 of 2017 Sudhir Ruparelia vs. MMAKS Advocates, AF Mpanga Advocates, CBL (In Receivership) and BoU brought an application against the Respondents where he sought for declarations that MMAKS Advocates and AF Mpanga Advocates are conflicting in acting for the 3rd and 4th Respondents.

He further sought for a declaration that the MMAKS Advocates and AF Mpanga were potential witnesses in HCCS No. 493 of 2017 and sought for an order barring them from representing CBL (In Receivership) and BoU.

The application was heard and on the 21st day of December 2017, Hon. Justice David Wangutusi allowed the application and disqualified MMAKS Advocates and AF Mpanga Advocates from participating in HCCS No. 493 of 2017 as advocates/counsel in Misc. Application No. 320 of 2019.

SR and Meera Investments Limited filed another application vide Miscellaneous Application No.320 of 2019 against CBL (In Receivership) contesting CBL (In Receivership)?s capacity to maintain proceedings against them under Civil Suit No. 493 of 2017 and further that the Plaint in Civil Suit No. 493 of 2017 did not disclose a cause of action against them.

According to the applicants, the Finance Institutions Act 2004 as amended permits the right to sue by a distressed Financial Institution to either where it is under statutory management or liquidation and not receivership. 

In reply, the Respondent submitted that receivership doesn?t take away the bank?s corporate personality. Furthermore, that it is a corporate body capable of suing and being sued. That because receivership is a management situation, there is no legal change as to capacity of a company to use or be sued.

In allowing the Application, the Judge interpreted Section 96 of the Finance Institutions Act which provides that: -

?When a financial institution is placed under receivership;

(i) no steps may be taken by any person to enforce any security over the property of a financial institution,

(ii) no other proceedings and no execution or other legal process may be commenced or continued against the financial institution or its property.?

Court found that the receiver was not clothed with capacity to maintain any form of proceedings in court.  It followed therefore that the Respondent under receivership lacked locus standi. Without locus standi its attempt at filing a suit was null ab initio.

The other objection raised by SR in the above application was whether the plaint disclosed a cause of action against him and Meera Investments Limited.

It was the learned Judge?s finding that the plaint did not disclose a cause of action against the Applicants. This was so because BoU had issued a public notice that specifically stated that both the assets and liabilities of the Applicants had been transferred to DFCU Bank Ltd under the Purchase of Assets and Assumption of Liabilities Agreement 2018, then there were no assets to claim. 

Following the dismissal of HCCS No.493 of 2018, CBL (in Receivership) filed Civil Appeal No. 252 of 2019 Crane Bank Ltd (In Receivership) Vs. Sudhir Ruparelia & Anor challenging the dismissal of HCCS No. 493 of 2018 for being statute barred and there being no cause of action.

The Justices of the Court of Appeal upheld the decision of the High Court and emphasized that a receivership is a creature of a statute and as such his powers must be derived from the statute. The Finance Institutions Act clearly granted the statutory manager and liquidator with power to sue and be sued. For the case of the Appellant the Receiver, such powers are not granted.

Dissatisfied by the above decision, CBL (in receivership) appealed against the said decision to the Supreme Court Vide Civil Appeal No.7 of 2020 Crane Bank In Receivership vs Sudhir Ruparelia and Meera Investments Ltd.

Crane Bank In Receivership brought two applications against SR and Meera Investments Ltd that is Civil Application No.33 of 2020 and Civil Application No.2 of 2021.

The former was an application for an interim order against the Respondent restraining him from claiming, taking control or in any way interfering with the management of Crane Bank In receivership whereas the latter application sought to substitute Crane Bank In Receivership with Crane Bank In Liquidation. Both Applications were unsuccessful.

SR also brought an application against CBL vide Miscellaneous Application No.39 of 2020 which application sought to restrain CBL from being placed under liquidation.

He also sought for a mandatory injunction to return the status quo of the 1st Respondent to where it was at the time of filing Civil Appeal No. 7 of 2020.

The application was allowed on the basis that upon closure, CBL ceased to be a Financial Institution and it could therefore not be progressed to liquidation.

On the 11th February 2022, the parties in SCCA No.7 of 2020, Crane Bank In Receivership Vs Sudhir Ruparelia on an application to withdraw the appeal and on who was to meet the security for costs.

Court found that pursuant to Rule 90 (4), where either party to the appeal objects to the withdrawal, then the appeal shall stand dismissed with costs. In line of the above provision, the appeal was dismissed with costs in the terms found by the Court of Appeal.

In making the decision court stated obiter dictum that;

?Noted that receivership of the Applicant had ended by the 20th January, 2018. The implication of that finding in our view is that the management of the Appellant reverted to the shareholders after the 20th January, 2018.?

Does the above ruling mean that the Crane Bank Limited was returned back to the previous management.

The answer is No. The above ruling could not pass CBL back to its previous management and or owners for the following reasons: -

(i) It was never an issue for determination before the Supreme Court as the issues principally related to withdrawal of the appeal.Such a decision is Obiter.The phrase Obiter has been defined in the case Paul Nyamarere Vs Uganda Electricicity Board (In Liquidation) Civil Appeal No.55 of 2008 to mean:

?remark made or expressed by a judge, in his decision upon cause ?BY THE WAY? ? that is incidentally or collaterally, and not directly upon the question before the court; or

any statement of law enunciated by the judge or court merely by way of illustration, argument, analogy or suggestion.?

The above remark by the Supreme Court was more of a suggestion since there was no question before court relating to whether CBL should revert to its previous owners.

(ii) the Financial Institution in the names of Crane Bank Limited was closed so it ceased to exist after receivership,

This position was elaborated by the Supreme Court itself in Miscellaneous Application No.39 of 2020 Sudhir Ruparelia Vs Crane Bank In Receivership where it stated that, 

?Upon closure, it ceased being a financial Institution under the Act.?

Accordingly, there cannot be a valid order returning a non-existent financial institution to its shareholders.

(iii) there are no assets to CBL since pursuant to the by Purchase of Assets and Assumption of liabilities agreement between DFCU and BoU assets were transferred to DFCU.

This is supported by the decision of His Lordship David Wangutusi in Miscellaneous Application No.320 of 2019 Sudhir Ruparelia & Anor Vs CBL (In Receivership) & Anor where he states that;

?In my view after conveying all these assets to DFCU Bank together with the liabilities including deposits the Respondent was left high and dry with no proprietary interest in any of the assets that had originally belonged to it.?

I wish to conclude by stating that it is not true both legally and practically that the Supreme Court ruling on the 11th February directed Bank of Uganda to return Crane Bank Limited back to its previous management.

Arnold Kiwalabye

Legal Assistant at Muwema & Co. Advocates