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Kiggundu v Diamond Trust bank (U) Limited & Another (Misc App No. 654 of 2020) [2020] UGCOMMC 32

Facts

In January 2020, Ham Enterprises sued Diamond Trust Bank Uganda and Kenya for allegedly debiting over Shs120bn from their Shillings and Dollar accounts over a period of about 10 years. The Bank failed to refund the reported unlawfully debited monies from the company’s accounts and Ham Enterprises instituted legal action against the Bank for recovery of the money.

DTB responded by demanding Shs39bn and they asked the Court to impose regulation 13 of the Mortgage Act which requires that anyone challenging a bank must pay 30% of the disputed amount.

Ham’s Kiggundu sought a declaration that said that the banks’ demand for $4,014,444 and $6,974,600 which was advanced to him by DTB -Kenya was illegal and unenforceable on grounds that the Kenyan bank had no licence to carry out financial business in Uganda. He argued that it was illegal for DTB Uganda to appoint DTB Kenya as the agent bank and security agent concerning its loan. He also wanted an order for the unconditional discharge of mortgages created over his properties.

Judgement

The head of the Commercial Court Justice Henry Peter Adonyo on Wednesday, 7th October 2020 ruled that the credit facilities DTB-Kenya offered to Kiggundu are illegal since it is not licenced by Bank of Uganda 

“The act of DTB-Kenya in conducting financial business is licensed in Kenya and it therefore illegally offered the facilities in Uganda. Consequently, this application is allowed with costs,” Adonyo ruled.

The Bank has since said that it has filed a notice of appeal against the judgement.

Ugandan finance sector reactions

The Uganda Bankers Association reacted to the news of the ruling in favour of Ham by saying that the precedent would harm the banking industry and economy as a whole since most banks in Uganda have been using this style of lending to lend money to the Ugandan government. 

“As a result of the judgment and its implications, the syndication portfolio currently seated with commercial banks that is now at risk is over Shs5.7 trillion ($1.53bn) of running facilities across various sectors including real estate, road construction, energy covering hydroelectric power, oil & gas and manufacturing among others,” UBA Chairman Mathias Katamba and UBA Executive Director Wilbrod Humphreys Owor wrote in an October 8 statement.

The Bank of Uganda on the other hand, through its Governor Prof. Emmanuel Tumusiime-Mutebile said that they are waiting for a written judgment from the court in order to assess the matter.

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