The Supreme Court has ruled that the syndicated loan Kampala businessman acquired from Diamond Trust Bank Uganda and Diamond Trust Bank Kenya was legal, ordering the businessman to pay the lenders 50 percent of the costs in the Supreme Court and Court of Appeal.
All five judges agreed in the judgement on Tuesday, pushing the issue of illegality presented by Kiggundus’lawyers back to the High Court for retrial before a different judge.
“The issue of illegality having been resolved in this appeal, High Court Civil Suit No. 43 of 2020, between the parties hereto, which was the genesis of the appeal to the Court of Appeal, and ultimately to this Court, is remitted back to the High Court for trial before another judge; basing only on issues of fact 15 arising from the pleadings,” the ruling read on Tuesday said.
Kiggundu, the owner of Ham Enterprises and Kiggs International which borrowed the money had asserted that DTB Kenya banks were carrying out financial institution business in Uganda; but without the requisite license from Bank of Uganda to enable it do so; which was in breach of the Financial Institutions Act, 2004, as amended. In their joint amended written statement of defense, DTB Ugand a and DTB Kenya denied the alleged illegalities.
The ruling avers that the transaction between DTB Uganda, DTB Kenya and Kuggundu was part of syndicated lending which is recognised internationally, which they said Justice Henry Adonyo failed to recognise earlier as he ruled in favour of Kiggundu in High Court case.
“The type of financial transactions entered into between the 1st and 2nd 25 Respondents is, otherwise, known as a syndicated loan facility; which is a global lending phenomenon practised by local and foreign banks or 51 non–bank lenders. This practice usually stems from the need to spread out, and thus reduce, the enormous risk associated with lending large sums of money. Individual countries may enact laws that place limits on the amount of money a bank can lend to a single borrower; thus 5 encouraging syndicated lending,” says ruling signed by Justice Alfonse Chigamoy Owiny – Dollo on June 6, 2023.
“The syndicated credit–facility executed between the 2nd Respondent and the 1 st Appellant, with the 1st Respondent as agent of the 2nd 5 Respondent, is lawful; and neither the Financial Institutions Act of 2004, as amended, nor the Financial Institutions (Agent Banking) Regulations, apply to them. Accordingly, the claim impugning the legality of the credit– facility contracts between the parties hereto is disallowed,” the written ruling stated.
The judges dismissed allegations that DTB Uganda and DTB Kenya were agents under the Financial Institutions Agent Bank Regulations didn’t apply to this transaction.
Background
In October 2020, Justice Adonyo ordered Diamond Trust Bank Uganda and Kenya to refund more than Shs120 billion they illegally deducted from two accounts of Kiggundu.
In August 2020, Kiggundu petitioned the court after Shs85 billion and Shs34 billion were illegally deducted by DTB Uganda and DTB Kenya from two accounts of his companies without his knowledge and consent. The companies are Ham Enterprises and Kiggs International Uganda Limited.
The documents indicate that between 2011 and 2016, Kiggundu through the two companies acquired loans totalling to Shs 41b from DTB Uganda and Kenya to finance his real estate businesses on condition that he mortgaged his properties in Makerere Hill, Kawuku, Kyadondo and Victoria Crescent Road among other plots of land.
However the banks reportedly served him with documents indicating that he has not met his loan obligation worth Shs39 billion as per their agreement and threatened to take over the properties he had mortgaged. As a result, Kiggundu petitioned the commercial court saying that the money that was withdrawn from his dollar and shillings accounts was excess yet he had also fully paid the loan.
Justice Adonyo ruled that DTB Uganda became a principal offender by facilitating the commission of an offence by allowing DTB Kenya which did not have a license to operate in Uganda to do financial businesses in the country.
Adonyo ordered the two banks to refund all the money that was illegally taken from Kiggundu’s accounts amounting to Shs34 billion and $23 (Shs85 billion) immediately.
The court also ordered the two banks to return all his land titles citing that the evidence on record indicates that all the loans the businessman had obtained from DTB Uganda were fully settled.
The two banks were also ordered to pay Kiggundu an interest of eight percent of the money as well as costs for the suit.
However, this ruling forced Diamond Trust Bank Uganda and Kenya filed a notice of appeal challenging the Commercial Court decision directing them to refund Shs120 billion to Kiggundu.
In the notice, the two banks through their lawyers of K and K Advocates noted they were not contented with the ruling by Justice Henry Peter Adonyo who said they had given Kiggundu money illegally as they allegedly violated the Financial Institutions Act, 2004.
“Take notice that Diamond Trust Bank Uganda Limited and Diamond Trust Bank Kenya Limited the above-named defendants being dissatisfied with the Judgement and order by Honorable Dr Justice Henry Peter Adonyo delivered on October 7, 2020, intend to appeal against the whole decision to the court of Appeal” read the notice in part.
