Uganda: How Sudhir Outsmarted and Turned Tables On BoU

On Monday, Justice David Wangutusi dismissed a suit by Bank of Uganda against Sudhir Ruparelia for lack of legal basis to sue. What had began as a strong legal case following the Central bank's closure of Crane bank in 2017 has ended up as a complete mess for the Central bank.

DERRICK KIYONGA looks at how the whole drama unfolded. In October 2016 Bank of Uganda (BOU) took over Crane bank, citing undercapitalised. BOU reasoned that Crane bank posed a systemic risk to the stability of the financial system and that the continuation of its activities in its current form was detrimental to the interests of its depositors.

This started a process which would lead to an epic legal battle with Sudhir Ruparelia, the former owner of Crane bank. For Sudhir, BOU had not just closed the bank. It had shattered his prime possession.

Sudhir's prospects looked worse. BOU then sued him. The Central bank had hired some of the finest commercial lawyers in Uganda. Timothy Masembe Kanyerezi of MMAKS and David Fredick Kisitu Mpanga of the international law firm, Bowmans. Both these lawyers are also English-trained barristers and have a reputation as some of the finest commercial lawyers in Uganda.

Matters were not helped for Sudhir when it was announced that the judge would be Justice David Wangutusi, the head of the Commercial court. The judge has a reputation as a no-nonsense, tough-as-nails judge. With the Central bank having two of the biggest law firms and the best lawyers and what looked like a serious case, Sudhir was all but gone. So, what happened?

At the time that BOU sued, unknown to the public was the fact that BOU and Sudhir had entered into a Confidential Settlement and Release Agreement. The agreement prohibited BOU from suing Sudhir for any activity that occurred during his management of the bank.

The agreement also provided that the parties would keep the agreement confidential. BOU would hand some property back to Sudhir and he would pay $60m and give up his branches. Part of the payment would be in cash and part of it would be in property. Why BOU abandoned this agreement and ran to court left many legal observers shocked. It has been dubbed the $60m mistake.

Sudhir chose as his lawyers Kampala Associated Advocates (KAA) led by Peter Kabatsi, a former solicitor general. The team included Joseph Matsiko, Elison Karuhanga, Bruce Musinguzi and Jet Tumwebaze. The KAA team, therefore, had both grit and gravitas. It had energy and experience and the team clearly came to do battle on behalf of Sudhir.

The first shot came from the Sudhir team when BOU gave them a copy of the suit. Within a day of service, they asked BOU to produce 21 documents that had been referred to by BOU in court documents, but not attached. In effect, they implied that the BOU case was simply smoke and mirrors. The detailed allegations in the plaint were not supported by the necessary documents. More importantly, Sudhir was sending a quiet and powerful message. He was going to challenge BOU every step of the way.

Documents

Legal analysts had warned that outside of court, BOU actions couldn't be challenged by Sudhir. In effect, BOU - by going to court - had levelled the playing field.

However tough its team was, it had given Sudhir some space to fight back. Sudhir's first notice to produce documents showed that he was finally ready to fight. Apart from assembling a strong firm to defend him, he also began to fight back in the media. He particularly used social media to tell his side of the story.

The moment he asked for 21 documents, the notice spread like wildfire on social media. Many asked 'what does this mean'... many lawyers knew it meant Sudhir has come for battle. BOU refused to give him 20 of the 21 documents.

Sudhir, nonetheless, went ahead to file his defence. It was a 62-page document. At the outset he promised to file an application to dismiss the BOU case and even BOU's powerful lawyers.

He brought out and published his agreement with BOU and laid out a powerful defence on the merits. A titanic legal battle was set. He listed a number of witnesses who included the governor Dr Emmanuel Tumusiime-Mutebile, deputy governor Louis Kasekende and Justine Bagyenda, the former BOU director for supervision, among others.

He also included as his witnesses BOUs lawyers. He claimed they had all worked for him and, in fact, had advised him on a number of issues that had been raised by BOU. He promised to apply and throw the lawyers out.

Sudhir also did something else. He added BOU as a party to the case and claimed $8m from BOU. His defence was shared widely on social media. Sudhir literally came out punching and had no plan to take hostages.

With the stakes raised, BOU had 15 days to reply. For some strange reason, the bank did not file a defence on time. Sudhir immediately asked for judgement. BOU asked for extension of time. In such a big case, why was BOU late? The parties were staring at each other and BOU was the first to blink.

Conflict of interest

Before BOU could have its application heard, Sudhir challenged Masembe and Mpanga as he had promised. He claimed they were his witnesses as they had intimate knowledge of his dealings. He also said they had a conflict of interest. He won that application.

The parties went for mediation and failed to resolve the issues. Sudhir then applied to dismiss the BOU case. He claimed BOU had no right to use Crane bank as a plaintiff against him. He based this argument on the Financial Institutions Act.

This is an Act that BOU alone enforces. Did they not know their law? Legal analysts argue that the court decision cannot be faulted. The Financial Institutions Act did not allow BOU to use Crane bank in receivership as a plaintiff. For that reason, Justice Wangutusi dismissed the BOU.

Another important highlight of the ruling is that BOU has also lost Crane bank's former branch network. So, what does this mean for dfcu? The dfcu branches now have Sudhir, and not BOU, as the landlord.

BOU, in selling to dfcu, had agreed to indemnify the bank. But after Monday's ruling, BOU may end up compensating dfcu and Sudhir. What began as a strong legal case with legal powerhouses has ended up as a complete mess for the Central bank. Now, by court order, they owe Sudhir costs.

The costs can go as high as $5m, according to some legal experts who preferred anonymity. BOU came after him all guns blazing. However, it seems Sudhir will go smiling all the way to bank after all.

dkiyonga@gmail.com

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