Tropical Bank Uganda Limited and its client, IT Office [U] Limited, find themselves at the center of a scandal after failing to repay a loan of over Shs6.84 billion to Prime Finance Company Limited. The debt has since risen to over Shs21 billion, shaming the local banking sector and causing panic within both institutions.
Prime Finance Company Limited is owned by city tycoon Sudhir Ruparelia
On March 13, 2020, Prime Finance Company Limited extended a Shs5.7 billion loan to IT Office [U] Limited, with Tropical Bank Uganda providing a written guarantee to repay the loan if IT Office [U] Limited defaulted. The loan, which came with a hefty 5% monthly interest, was to be fully repaid by July 9, 2020. However, four years have passed, and not a single payment has been made, leading to the significant accumulation of the debt.
In February 2020, IT Office [U] Limited requested the loan from Prime Finance Company Limited to settle outstanding debts it owed to Tropical Bank. In exchange, Tropical Bank agreed to an irrevocable undertaking, binding both itself and IT Office [U] to repay the loan and any accrued interest. The funds from the Prime Finance loan were intended to help IT Office [U] Limited pay off its Shs5.7 billion debt to Tropical Bank and secure an even larger loan of Shs10 billion.
Despite these assurances, Tropical Bank now refuses to honor its commitment. The bank’s board claims that the transaction was fraudulent; an allegation dismissed by the bank’s senior staff, including the Executive Director, Head of Credit, and Legal Manager. These officials assert that they followed all internal procedures, signing the undertaking to benefit the bank, not themselves personally.
The bank’s staff claims that after signing the irrevocable undertaking on behalf of the bank they sealed the same irrevocable undertaking with the official bank seal, meaning all was okay, and therefore the bank had to pay over Shs6.840 loan to Prime Finance Company Limited.
Under the irrevocable undertaking, Tropical Bank Uganda as the undertaker guaranteed that the debt was recoverable against them with 5 percent interest per month until full repayment, regardless if their client IT Office [U] Limited was able or unable to repay the debt.
IT Office [U] Limited’s loan of Shs5.7 billion from Prime Finance Company Ltd helped the bank to recapitalise as demanded of it by the Bank of Uganda [BoU], the regulator of the banking industry in the country. This money from Prime Finance Company Limited would enable IT Office [U] Limited to secure another Shs10 billion from Tropical Bank Uganda since the bank still held the company’s collateral including various pieces of land, and a motor vehicle worth billions of shillings.
Indeed, staff of the bank confirm that IT Office [U] Limited started overdrawing its account after paying the Shs5.7 billion debt to Tropical Bank Uganda, making the bank a beneficiary of Prime Finance Company Limited’s money.
However, despite several reminders that Tropical Bank Uganda pays the debt to Prime Finance Company Limited, the former has not been cooperative. The bank in a bizarre move shifted goal posts, running to BoU, claiming that the Shs5.7 billion loan transaction was a result of fraud, but the response from Prime Finance Company made Bank of Uganda advise Prime Finance Company that it seeks remedies available to it under the Contract Act 2010, BoU having recognised that there was an irrevocable undertaking on the side of Tropical Bank Uganda to repay the loan and interest at the time of signing the agreement.
Following BoU advice, Prime Finance Company Limited, through its lawyer, would on December 4, 2022, file a suit against IT Office [U] and Tropical Bank Uganda, and on August 30, 2021, court ruled in favour of Prime Finance Company Limited for recovery of Shs6.84 billion, repayable at interest rate of 5 percent per month on the decretal sum till payment in full and costs in the main suit and application be borne by the respondents. But since the ruling, no repayment has been made by Tropical Bank Uganda.
In a meeting at Tropical Bank Uganda when the Shs5.7 billion was being sought, its officials assured Prime Finance Company Limited that the bank would personally repay the money guaranteed by July 9, 2022, yet the bank officials also agreed to pay interest on principal sums in case the bank failed to pay the money on an agreed date.
From the documents in possession of this website, it appears Tropical Bank Uganda Board of Directors want to use the excuse of not authorising their senior staff to transact loan business to defraud Prime Finance Company Limited, especially under the influence of the current Executive Director, formally heading the Recovery Department of the bank at the time of this transaction.
At the time top managers threatened to tear each other into pieces to rise to the top. It’s such internal strife and the bank’s financial struggles that became unbearable for Former ED, Head of Credit department, and of operations, prompting them to hand in their resignation letters.
The infighting, knowledgeable sources say sharply divided management into two rival gangs, with Managing Director Abdul Aziz Mansul, Head of Compliance Caroline B Ogwang and then Head of Recovery Joweria Mukalazi teaming up to throw out ED and his allies in the bank owned by Libyan government through the Libyan foreign bank. Ogwang and Joweria were cited as those who ruthlessly fought off the former Executive Director so that they could take up his position. Indeed Joweria Mukalazi was elevated to the position of bank’s Executive Director in acting capacity.
It’s against this background that most of the bank’s sensitive transactions that were carried out under Former ED’s stewardship were allegedly queried as result of his rivals’ biased actions, something that affected both clients and general bank operations.
