EC Village Verification

The Constitution Court has dismissed a petition filed by Amos Nzeyi challenging Bank of Uganda’s (BOU) decision to liquidate National Bank of Commerce (NBC) and its assets and liabilities sold to the defunct Crane Bank.

On 27th September 2012, the Bank of Uganda revoked the banking license of National Bank of Commerce. The deposits and branches of NBC were taken over by Crane Bank, as administrator, on behalf of Bank of Uganda. Immediate steps were initiated to wind up the affairs of NBC.

After the takeover of the bank, the former chairman of the Bank, Amos Nzeyi secured an interim order against the actions of the Bank of Uganda. According to Nzeyi, the sale of NBC contravene Article 2, 36, 27, 28, 40 (2), 44, 162 (2) of the constitution of Uganda.

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He also contends that section 17(f), 7(c), 28 (5), 57, 77, 88, 99, 102 (2) (i) and 101 of the Financial Institutions Act 2004 giving sweeping powers to Bank of Uganda are inconsistent with articles 2, 36, 27, 28, 40 (2), 44, 162 (2) of the constitution of Uganda.

Four of the five Judges led by Kenneth Kakuru, Geofrey Kiryabwire, Cheborion Barishaki, Ezekiel Muhanguzi and Stephen Musota dismissed the matter on ground that the bank was taken over because its activities were detrimental to the interests of the depositors.

“The bank of Uganda carried out oversight activities for a period of three years before the takeover and liquidation and the bank was always in touch with management of NBC. At the closure, NBC had core capital deficiency of Shs 928,310,000 compared to Shs 10,000, 000,000 which was required 2012,” judgement reads in part.

The bank was formed in 1991, and was named Kigezi Bank of Commerce, with a mission to provide banking services and inexpensive loans to the Kigezi Community. During the mid-1990s, the Gidoomals, a family of Asian descent and Kenyan citizenship acquired 86% shareholding in the bank.

In April 2008, the Gidoomal brothers sold their shares to Amos Nzeyi, Amama Mbabazi and Ruhakana Rugunda. The three, together with former Ugandan Finance Minister, Ezra Suruma, are shareholders and Directors of the bank. In July 2011, Emirates Link, an Abu Dhabi investment company, acquired shareholding in NBCU. Ugandan media reports indicated the bank will begin offering Islamic banking later in 2011.

In May 2012, the Ugandan Commercial Court directed the bank to appoint a new board of directors and to proceed with recapitalization, in order to stay solvent.

“The petition fails and is dismissed, as to costs, since the matter of NBC was resolved a long time ago, I find it that each party bears its own costs,” Justice Kyabwire ruled.

Justice Muhanguzi agreed with Kiryabwire noting that the petition has no merit and it should be dismissed and each party bear its own costs.

Justice Cheborion Barishaki observed that there was a good reason for closure of NCB in public interest of achieving stability of the banking sector by maintaining good prudential control authorised by the constitution of Uganda.

“BoU was entitled to by the powers granted to it by the FIA and to my view; it did so for the proper purpose of avoiding damage to the financial system which would have been brought by the collapse of NBC. Therefore the petition lacks in merit,” Justice Barishaki ruled.