Cart before the horse? Sudhir seeks to evict dfcu

A year ago, a story in the Daily Monitor had a headline, “What next for Sudhir after dfcu acquires Crane Bank?” At the time, there were active court cases regarding the takeover of Crane Bank, a bank he controlled and owned. In the article, it was articulated that “Sudhir maybe down but he definitely not out.” In the latest legal battle, Meera Investments, which he owns is suing dfcu Bank – it acquired some of the assets of Crane Bank when it was being liquidated by Bank of Uganda (BOU). He is seeking to recover buildings that he claims were illegally and fraudulently converted into dfcu properties. He wants dfcu to exit at least 46 properties. In the acquisition of some of the assets of Crane Bank, dfcu did takeover branches and some of the buildings they occupied.

“A declaration that the parting with possession and transfer of the leasehold interests in the suit properties from Crane bank limited into the names of the 1st defendant (dfcu) was tainted with illegality and fraud and therefore is invalid,” the Meera Investments lawsuit against dfcu reads.

Crane Bank had expanded and had about 48 branches, occupying properties they were leasing from Meera Investments. In essence, the branches were in buildings owned by Meera Investments but had lease agreements with Crane Bank. In taking over Crane Bank for being significantly undercapitalized on October 20th, 2016, BoU started running the bank and ordered a forensic audit. That forensic audit, depending on who you chose to believe, made some interesting revelations.

It is that forensic audit that was used by BoU to reach a confidential agreement with Sudhir Ruparelia, where the businessman had agreed to hand over some properties and pay cash in order to plug the “hole” found in the bank. The agreement fell through and BoU decided to sue the businessman in order to recover about $92m (Shs400bn). Since the audit had unearthed alleged fraudulent activities it was considered that the businessman, according to the Financial Institutions Act (FIA) was no-longer fit and proper to run a bank.

The fraud mentioned in the court documents include an allegation of the illegal transfer of properties especially in transactions between Meera Investments and Crane Bank. The properties include the buildings that dfcu now occupies. Even before that, Crane Bank was still found to be insolvent – it would not be able to meet obligations. Indeed when dfcu acquired Crane Bank, some of the assets that were transferred to dfcu were “…including CBL’s branch network comprising of inter alia the 48 Leasehold Certificate of Titles.”

In its defense, dfcu states that the 42 (what Meera Investments wants bank) of the 48 Freehold Certificate of Title “was fraudulently transferred to the plaintiff (Meera Investments) which is an associated company of CBL, through its common directors and majority shareholders.”

The titles under question are valued at Shs41.8bn and dfcu did pay nearly Shs700m Stamp Duty to transfer them into their own. BoU states that the undercapitalization of Crane Bank was estimated to be about Shs300bn. More so, BoU used about Shs200bn of taxpayers to keep the bank afloat, meeting depositor demands and any other bank obligations.

“Cart before the horse”

Meera Investments argues in its written response to dfcu defense that is not a bank and therefore is not regulated by the Bank of Uganda. It also goes on to insist that this case in the High Court, Land Division is not related or be affected by the proceedings in the case in which Meera Investments was sued earlier.

A closer look at the case against Crane Bank though makes claims such as Meera Investments did fraudulently acquire, develop, transfer and lease-back the finished buildings. In the suit against Sudhir Ruparelia and Meera Investments, there are accusations of “asset stripping”, “failure to safeguard Crane Bank assets,” stole the properties and permitted them to be extracted from Crane Bank.

“The sales and lease-backs are to be rescinded and the interests held by the plaintiff re-transferred to the plaintiff (Crane Bank Limited in receivership),” the lawsuit reads.

It should be noted that Meera Investments is one of the parties that was sued then. This case is currently in mediation at the Commercial Division of the High Court.

Before this case is disposed off now Meera Investments is looking to block any transfer of assets and evict dfcu, which acquired some of the assets and liabilities of Crane Bank. In acquiring these assets, it also included titles to the land that branches were occupying. In this case, isn’t BoU the institution to sue for handing over titles to dfcu?

Related links:

BoU vs Sudhir: From a lawsuit, to counterclaim, to conflict of interest…

dfcu acquired Crane Bank for peanuts? Only if your head is buried in the sand

(Document) Sudhir Ruparelia defense & counterclaim against Bank of Uganda

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