On October 24, 2023, the High Court of Uganda issued a landmark decision that faulted the beleaguered DFCU Bank for fraudulently transferring to itself 48 properties that Crane Bank had leased from Meera Investments prior to the fraudulent bank seizure.
For those who are unfamiliar, Meera Investments Limited, a subsidiary of the Ruparelia Group owned by Ugandan billionaire Dr. Sudhir Ruparelia, who was and still is the second largest shareholder in the now-defunct Crane Bank, filed a case in the High Court in 2017 accusing DFCU Bank, in collaboration with the Lands Registration Board, of illegal and/or fraudulent sale and possession of its 48 leasehold properties across the country. Meera had previously leased the premises to Crane Bank.
Meera stated the Court that it leased out its 48 properties to Crane Bank Ltd. via multiple lease agreements, lease modifications of lease agreements, and lease renewals negotiated between itself and the former Crane Bank Limited. Crane Bank Limited's interests were recorded as encumbrances on the 48 mailo and freehold titles after the leasing, and leasehold certificates of title were prepared and registered in the lessee's name. These assets included the 48 former Crane Bank Limited branches spread around the nation.
Following the acquisition of Crane Bank's assets in January 2017, dfcu unlawfully and with the assistance of the Commissioner of Lands Registration changed the 48 titles into its names without Meera's written agreement, as required by law.
DFCU Bank, on the other hand, rejected the charges, claiming that it properly obtained its stake in the 48 leasehold properties after purchasing them from the Bank of Uganda as a receiver of Crane Bank Limited in 2017. Crane Bank Limited has been seized and auctioned off by the Bank of Uganda. Dfcu Bank further informed the Court that no permission from Meera Investments was necessary prior to the transfer or taking possession of the suit properties since the transfer was a statutory transfer under the rules of the Financial Institutions Act. Dfcu also denied any wrongdoing or fraud in the purchase of the suit assets.
High Court Judge Justice Tadeo Asiimwe, who presided over the case ruling last month, held that DFCU acted illegally and fraudulently in taking possession of and transferring the leasehold interests without the prior written consent of Meera Investments, the registered proprietor of the Freehold/Mailo titles and interests.
Drawing the parties' attention to Clause 8(2) of the January 2017 Purchase and Assumption Agreement between Crane Bank Limited (in receivership) and dfcu Bank, which stated that "the properties are sold and assigned herein subject to the rents reserved by and the covenants and all other provisions contained in the relevant leases," Justice Tadeo Assimwe ruled that the lease transfer from Crane Bank to dfcu Bank was illegal.
"In my opinion, any dealing or transaction in the property under a leasehold certificate of title must be concluded in a manner consistent with the lessee's rights and powers." "Where, as in this case, the lessor has reserved the right and power to consent to any transfer of physical and legal possession or parting with possession by the lessee, any transaction concluded with the effect of transferring legal and physical possession of the leasehold properties would be illegal and in violation of the statutory protection conferred on the lessor by Section 36 of the Registration of Titles Act (RTA)," he ruled.
The judge also ordered DFCU to pay Meera Investments an additional UGX2.4 billion, including the reparation of all 48 properties into tenantable positions, and declared that there were no valid leases in respect of the properties, claiming that the leases in question were thus a breach and illegality.
As a result, the court ordered the commissioner of property registration to delete 48 leases, lease changes, and extensions that had been recorded as encumbrances on Crane Bank's mailo and freehold titles.
Asiimwe also imposed a permanent injunction prohibiting DFCU, its agents, and employees from entering the Crane Bank premises.
"The DFCU Bank was obligated to ensure that the covenant was followed before it could take physical and legal possession of the property." Despite being aware of the legal need, dfcu Bank chose to rely on promises from the receiver (Bank of Uganda) to recover and sell the reversionary interests. The judge ruled that "it ought to have been clear to the DFCU Bank that its contractual arrangements with the Receiver purporting to contract the Meera Investments out of its properties were not binding on the Meera Investments as the lessor and could not override the rights of the Meera Investments as a lessor, reserved under the lease covenants and protected under the provisions of the Registration of Titles Act (RTA)."
On the question of whether the titles in DFCU's possession are now voidable, the judge ruled that "the position of the law is that where a lessee or even a tenant denies the Lessor's title and or refuses to recognize the lessor of the suit property and the covenants of the lease, such lessee or tenant becomes a trespasser on the suit property, and the Lessor would be entitled to an order of vacant possession of the premises."
"Accordingly, I find that the dfcu Bank (dfcu) became a trespasser on land in January 2017 and the certificates of titles for the lease properties illegally and fraudulently acquired and/or transferred in their names are liable for cancellation on account of fraud and illegality," he said.
Because Crane Bank is no longer in business, the court ordered DFCU to pay the costs of the suit to Meera Investment Limited, the mother company of Crane Bank Limited, which instituted the suit on behalf of its child company, Crane Bank, and declared Meera Investment Limited to be the registered proprietor of the freehold/mailo interests in the properties.
The court granted DFCU three months to evacuate the 48 properties in Kampala, Kasese, Masaka, Samia Bugwe, Busia, Masindi, Gulu, Malaba, Entebbe, Kabale, Hoima, Soroti, Mukono, Ibanda, Arua, and Fort Portal, among other places.
DFCU Bank reacts.
DFCU confirmed the judgment in a November 3, 2023, statement, saying it "does not affect the bank's day-to-day operations since the branches in question were vacated in 2020."The Bank of Uganda also fully indemnifies dfcu Bank under the P&A agreement," it said.
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