In a historic ruling on October 24, 2023, the Ugandan High Court held the embattled DFCU Bank accountable for misappropriating 48 properties that Crane Bank had leased from Meera Investments before the bank was unlawfully seized.
For those who do not know, in 2017 DFCU Bank and the Lands Registration Board collaborated to file a lawsuit in the High Court against Meera Investments Limited, a subsidiary of the Ruparelia Group, which is owned by Ugandan billionaire Dr. Sudhir Ruparelia, the second largest shareholder in the now-defunct Crane Bank. The lawsuit accused DFCU Bank of engaging in the unlawful and/or fraudulent sale and possession of its 48 leasehold properties throughout the nation. Crane Bank had previously rented the space from Meera.
Meera told the court that it had many lease agreements, lease revisions of lease agreements, and lease renewals made between itself and the former Crane Bank Limited, under which it leased out its 48 properties to Crane Bank Ltd. Following the leasing, the 48 mailo and freehold titles were registered with Crane Bank Limited's interests listed as encumbrances. Leasehold certificates of title were then created and registered in the lessee's name. Among these assets were the 48 locations around the country that were once owned by Crane Bank Limited.
After DFCU illegally and with the help of the Commissioner of Lands Registration altered the 48 titles into its names after Crane Bank's assets were acquired in January 2017, without the legally needed written consent from Meera.
In contrast, DFCU Bank denied the accusations, asserting that it had legitimately acquired its interest in the 48 leasehold properties when it bought them from the Bank of Uganda in 2017 while serving as Crane Bank Limited's receiver.
The Bank of Uganda has taken control of Crane Bank Limited and put it up for auction. DFCU Bank also told the court that as the transfer was a statutory transfer in accordance with the Financial Institutions Act's regulations, no consent from Meera Investments was required before the transfer or taking possession of the suit properties. DFCU also rejected any fraud or misconduct in the acquisition of the assets in question.
The case ruling last month by High Court Judge Justice Tadeo Asiimwe found that DFCU had committed acts of fraud and illegality by transferring the leasehold interests without first obtaining the written consent of Meera Investments, the registered proprietor of the Freehold/Mailo titles and interests.
After pointing out to the parties Clause 8(2) of the January 2017 Purchase and Assumption Agreement between dfcu Bank and Crane Bank Limited (in receivership) 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 declared that the transfer of the lease from Crane Bank to dfcu Bank was prohibited.
"In my opinion, any dealing or transaction on 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)," said the judge.
The judge further declared that there were no valid leases for the properties in question, claiming that the leases in question were a violation of the law and that DFCU was therefore obligated to pay Meera Investments an additional UGX2.4 billion, including the reparation of all 48 properties into tenantable positions.
Consequently, the court ordered those 48 leases, lease modifications, and lease extensions that had been listed as encumbrances on Crane Bank's mailo and freehold titles be removed by the commissioner of property registration. Additionally, Asiimwe issued a permanent injunction that forbade DFCU, its representatives, and staff members from going on the Crane Bank property.
"The DFCU Bank was obligated to ensure that the covenant was followed before it could take physical and legal possession of the property." DFCU Bank decided to depend on assurances from the receiver (Bank of Uganda) to retrieve and sell the reversionary interests, even though it was aware of the legal need.
The court determined 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)."
In response to the inquiry regarding whether the titles held by DFCU are now voidable, the judge declared 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 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," stated the judge.
The mother company of Crane Bank Limited, which initiated the lawsuit 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, was ordered by the court to receive DFCU's costs of the suit because Crane Bank is no longer in operation.
The 48 homes located in various locations like as Kampala, Kasese, Masaka, Samia Bugwe, Busia, Masindi, Gulu, Malaba, Entebbe, Kabale, Hoima, Soroti, Mukono, Ibanda, Arua, and Fort Portal were given three months by the court to be evacuated by DFCU.
Bank DFCU responds.
In a statement released on November 3, 2023, DFCU expressed confirmation of the ruling and said that it "does not affect the bank's day-to-day operations since the branches in question were vacated in 2020." According to the P&A agreement, the Bank of Uganda also completely indemnifies DFCU Bank," the statement said.