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TOP STORY: Former Crane Bank clients sue Dfcu for illegally retaining mortgages taken during Crane Bank era

The legal battle between dfcu Bank and the defunct Crane Bank over mortgages worth billions of shillings shows no signs of abating, this website can reveal.

The legal battle between dfcu Bank and the defunct Crane Bank over mortgages worth billions of shillings shows no signs of abating, this website can reveal.

As case filing enters the latter stages, clients who took out mortgages with Crane Bank before it went under the central bank’s hammer find themselves condemned to a life in purgatory.

Salim Pyarali Hirani and Shamina Hirani—the directors of Master Electronics who had mortgages registered on their properties in Kampala (folio 11 plot 88 South Street, folio 11 plot 56 Seventh Street, and plot 58 Seventh Street) when Crane Bank Limited still had a clean bill of health.

We have since has established that the directors of Master Electronics want the Lands Ministry to remove their mortgages from dfcu Bank on grounds that “they are maintained illegally on the land register.”

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Following the closure of Crane Bank, dfcu Bank—with the blessing of the central bank—took over the defunct bank’s assets and customer deposits in a contested Shs200 billion deal.

On August 4, 2022, Mr Baker Mugaino—the acting commissioner of land registration—informed the Lands ministry about intentions of Master Electronics’ top brass.

Junior Lands Minister Sam Mayanja offered a response on June 13, 2022. Court documents seen by this publication indicate that the minister indicated that the position was settled by the Supreme Court in Sudhir Ruparelia vs Crane Bank (in receivership) and Bank of Uganda (BoU).

Back in 2017, Crane Bank (in receivership)/BoU dragged Mr Ruparelia and his company Meera Investments to the Commercial Division of the High Court. They sought to recover billions of shillings that they claimed had been purportedly siphoned by Mr Ruparelia. The case was dismissed by Justice David Wangutusi in his capacity then as head of the Commercial Court.

The decision was upheld at the Court of Appeal. BoU also appealed to the Supreme Court, but withdrew the case when the country’s apex court rejected another application. The central bank unsuccessfully wanted court records to change the “Crane bank in receivership” to “Crane Bank in liquidation.”

Lands Minister Chips In

Mr Mayanja made clear that maintaining the mortgage entries on Pyarali and Shamina’s land titles amounts to interfering with the decision of the Supreme Court by “unlawfully maintaining a mortgage interest to non-existent bank, which amounts to contempt of court.”

In a notice of intention to effect changes in the register, Mr Mugaino indicated that Mr Mayanja “advised to cancel the above entries under [Section] 91(2) of the Land Act Cap 277 for being illegally and wrongfully retained on the petitioner’s titles.”

Besides determining whether Crane Bank mortgages are legally retained on the land titles in question, Mr Mugaino was also eager to establish how mortgages are transferred. A good place to start, he thought, was putting a definition to a mortgage.

A mortgage, Mr Mugaino said, is registrable interest in land that can only be created, transferred, and assigned under a written deed signed by the land owner or mortgagor. If this wasn’t simple enough, then the 1977 case of Katarikawe vs Katwiremu further cleared the air.

In the case, the High Court held: “In a land system based on registration, there are basically two interests: the registered estate and the other registrable interest such as mortgages and charges.”

Based on the above position, Mr Mugaino said any claim to the defunct Crane bank mortgages is invalid unless it’s supported by a mortgage assignment or transfer instrument from the receiver, BoU, to dfcu.

He also noted that dfcu’s claim over the mortgages is complicated by the fact it is in violation of Section 12 of the Mortgage Act. It further did not help that there is no memorandum endorsed or annexed to the defunct Crane Bank mortgages.

Public Hearing 

Dfcu did not turn up for a public hearing for all the parties Mr Mugaino lined up for August 29, 2022. It instead lodged a case in the Commercial Court, arguing that New Master Electronics defaulted on two loan facilities of $3 million (Shs11.1b) and Shs3 billion it took from Crane Bank on the back of mortgages. Crane Bank, it added, issued several default notices, dating back to June 5, 2015.

Dfcu says on January 25, 2017, BoU—in its capacity as the Crane Bank receiver—sold and assigned it the bank’s loan portfolio, mortgages and other securities. This included those of New Master Electronics yet the business entity went on to question its indebtedness to Crane Bank.

“The validity and enforceability of the mortgage securities by the plaintiff were upheld in all the various suits,” dfcu said, adding that validity and enforceability of a mortgage cannot now be subjected to inquiry by the commissioner of land registration under Section 91 of the Land Act.

Contrary to what is contended by the registrar’s notice, dfcu says the assignment of the mortgage securities is not “a variation of mortgage” within the meaning of Section 12 of the Mortgage Act. The bank further contends that the aforesaid provision is limited to changes to the terms of the mortgage deed agreed between the mortgagor and the mortgagee.

“This doesn’t arise in the present case as the mortgagor is not a party to an assignment of mortgage security,” dfcu noted, adding that Section 12 (5) of the Mortgage Act which provides for a registrable memorandum is not applicable as the Assignment Deed doesn’t fall under any subsections 12 (2) to 12 (4) of the Mortgage Act.

Dfcu says an assigned mortgage cannot without the sign-off by the mortgagor be varied to read the name of the assignee. That has been the case, dfcu contends, with all closed banks assigned portfolios. After Greenland Bank, International Credit Bank, and Cooperative Bank closed shop, their loan and mortgage portfolios were assigned over 15 years ago to Nile River Acquisition Company Limited. Dfcu Bank points out that it is still registered in the names of the closed financial institutions.

New Master Electronics Response

In response to the dfcu Bank suit, the directors of New Master Electronics filed a separate application in the same court asking it to dismiss the bank’s case. The gist of the New Master Electronics application is that dfcu, as an alleged aggrieved party, has not exhausted an venue of being heard on its claims by the commissioner of land registration at the public hearing.

“The respondent can only come to this honourable court by way of appeal against the decision of the CLR (Commissioner of Land Registration) delivered at the end of the public hearing,” New Master Electronics says through their lawyers of Muwema Company Advocates. Dfcu’s suit, according to New Master Electronics, is barred by law because it attempts to re-litigate the settled question of the non-existence of the defunct Crane Bank through its claims of the validity and enforceability of the Crane bank’s mortgages.

“The suit is to the above extent a perpetuation of an illegality as it maintains a fictitious and illegal entry of a non-existent bank on the land register in contravention of Section 7 (1) of the Financial Institutions Act 2004 (as amended) and Section 91 of the Land Act Cap 277,” New Masters Electronics says.

Its lawyers also noted: “The said impugned entries are, therefore, wrongly and illegally retained on the land register and the CLR [Commissioner of Land Registration] is within its statutory powers to remove them without recourse to the court.”

In this application, New Master Electronics further opens a Pandora’s Box when it insists that the mortgages on its properties were not part of the Crane Bank assets that BoU sold to the Dfcu under the Purchase of Assets and Assumption of Liabilities Agreement (PAAL) and Deed of assignment.

Indeed, the agreement between BoU and dfcu—which was signed by then BoU governor Emmanuel Tumusiime Mutebile, Margaret Kasule, BoU bank secretary, then dfcu managing director Juma Kisaame, and then dfcu executive director William Sekabambe — says assets that dfcu bought does not include mortgages.

It clarifies that it in fact includes physical cash and balances held by Crane Bank in accounts maintained in other banks or BoU; amounts owed to Crane Bank by third parties other than customers; computer software; stocks; bonds; movable assets; fixed assets, as well as loans and advances.

Other assets include properties and all rights of Crane Bank against third parties, representations, and indemnities.

As such, New Master Electronics accuses DFCU of “forum shopping” with BoU, and the Attorney General in a bid to cajole the commissioner of Land Registration to force a position that the bank is the owner of Crane bank’s disputed mortgages.

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