Sh41b DTB-Ham court battle takes new twist

The sh41b loan legal battle between Diamond Trust Bank (DTB) and businessman Hamis Kiggundu has taken a new twist with the bank seeking an unconditional stay of implementation of the verdict in which Kiggundu emerged the victor. 

On October 7, Commercial Court head Justice Henry Peter Adonyo quashed the sh41b credit facilities advanced to Kiggundu by Diamond Trust Bank (DTB)-Kenya on grounds of illegality. 

Adonyo ruled that DTB-Kenya illegally offered the credit facilities to Ham Enterprise Limited and Kiggs International (U) Limited owned by Kiggundu.  

In his ruling which has since attracted mixed reactions from bankers, the legal fraternity, and members of the public, Adonyo noted that DTB-Kenya being a foreign bank, had to seek permission from Bank of Uganda (BOU) to carry out business in the country.     

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

The judge observed that DTB-Kenya irregularly offered the credit facilities to Kiggundu since it is not licenced to conduct financial business in the country. 

The parties in the matter however on Monday appeared before Principal Judge Dr Flavian Zeija at the High Court in Kampala and entered their submissions for and against a stay of implementation of the ruling pending appeal.  

About three weeks ago, Zeija granted an interim stay of implementation of the judgment to DTB bank. 

Zeija however gave the interim relief to DTB in the absence of Kiggundu's lawyers. 

DTB through its lawyer Kiwanuka Kiryowa asked Zeija for an unconditional stay of execution of the judgment arguing that it is intended to halt an executionable decree pending the determination of their appeal.  

Kiryowa argued that the bank stands to suffer a loss if the implementation of the lower court orders is not stayed pending determination of the appeal. 

"It is not a matter of this court to determine whether or not our appeal will succeed as the respondent's lawyers argue but this court is only supposed to focus on serious grounds of law we have raised before it to grant this application," Kiryowa submitted. 

Kiryowa submitted that the court is enjoined to stay enforcement of a judgment immediately after it has been delivered on application by an aggrieved party. 

"We pray that this court be pleased to find merit in this application and cognizant that there is a reputable harm and grant an unconditional stay of execution pending appeal," Kiryowa noted. 

Kiryowa revealed that the appeal in the matter has since been fixed for hearing on November 27 by the appellate court. 

Kiggundu through his lawyer Fred Muwema however vehemently opposed the application arguing that DTB's intended appeal has limited chances of success. 

"It is only a superior court that has powers to stay implementation of the judgment," Muwema submitted. 

Zeija said he will give his ruling on whether or not to grant an unconditional stay of execution of the judgment on Monday next week. 

In his ruling Adonyo faulted DTB-Uganda for acting as a collection agent for DTB-Kenya saying it was illegal, unethical, unlawful and in breach of trust, fiduciary duty and in breach of the Financial Institutions Act, 2004 and BOU Consumer Protection Guidelines, 2011.  

Consequently, the judge ordered the banks to refund sh34b and $2,346,670 at an interest rate of 8%, which he declared was unlawfully appropriated by the banks from Kiggundu's accounts.  

The court also ordered for the unconditional discharge of mortgages created over Kiggundu's properties comprised in Kyadondo Block 248, Plot 328 land at Kawuku, FRV 1533, Folio 3, plot 36-38, Victoria Crescent II Kyadondo and LRV 3176 folio 10, plot 923, Block 9 located at Makerere Hill Road and all cooperate and guarantees issued to the banks.   

The court also quashed the demand notices for $4,014,444 (about sh14.8b) and $6,974,600 (about sh25.7b) which the banks had issued to Kiggundu.     

The arguments   

DTB-Kenya head of debt recovery and company secretary Stephen Kodumbe contended that the bank never conducted any business in Uganda and the credit facilities were offered in Kenya.   

"Ham Enterprises Limited applied for the credit facilities in Kenya, which was obtained in Kenya and transferred to his account from Kenya and no illegality was committed," Kodumbe contended.   

Kodumbe argued that DTB-Uganda did not act as an agent of DTB-Kenya to conduct business in Uganda but only sought its services as a collection agent for it to receive its payments from Ham Enterprises Limited.    

Court documents indicated that Ham Enterprise Limited was indebted to a tune of $6,298,380 on a term loan facility of $6,663,453 and sh2.8b on the demand overdraft facility of sh1.5b, temporary demand overdraft facility of sh1b; $3,662,241 on the term loan facility of $4,000,000 and $4458,604 on the term loan facility of $500,000.     

The ruling however has rendered recovery of the money by the bank unenforceable.  

Genesis

In March this year, Kiggundu and his two companies Ham Enterprise Limited and Kiggs International dragged DTB -Uganda, and DTB-Kenya to the Commercial Court accusing them of fraudulently siphoning over sh120b from his accounts without his knowledge and consent.         

Kiggundu contended that between February 2011, and August 2018, through his companies sought and was offered credit facilities by the banks for construction of commercial properties.         

He argued that while still servicing his credit facilities, he carried out an audit and reconciliation of the loan accounts and found out that the banks had purportedly taken sh34b and $2,346,670 from his account without his knowledge.   

The final verdict in the matter is poised to set a precedent in the banking sector in the country.