It will be long before the DTB verses Ham case ceases to be a talking point now that it is at the appeal level. Who knows, there might actually be another appeal in the Supreme Court.
It has been a talking point and it might remain so no matter how quick you might want it to vanish.
Since
the case was filed in March, too much has been thrown around. In fact,
most people have, and continue to struggle to separate hearsay from
matters of fact.
Considering which side you listen to, you are bound to get half-truths or twisted narratives bent on driving a certain agenda.
From the onset, it was obvious there had been a purposed agenda to influence the case.
Bloggers,
social media influencers and online publishers and indeed some main
stream media, had seemed to rally around a converging point from which
they sourced real or perceived information that was later shared in a
syndicated manner.
Daily Monitor has not obtained any evidence to
suggest a syndicated arrangement but one might want to understand who
was generating and coordinating the narrative, which at some point had
reported that Diamond Trust Bank (DTB) had run bankrupt.
Actually,
there had been reports suggesting that DTB, in a scheme to stay afloat,
had resorted to siphoning money from Ham Enterprises accounts.
This
could have been an ordinary case of mis-reporting but in hindsight, it
hurt the bank and in different statements, it came out to correct the
misinformation as malicious propaganda.
Therefore, in looking at this case, we shall seek to understand some of the key ingredients but we shall limit this article to matters before court with references extracted from the ruling of Justice Henry Peter Adonyo, filed applications, defences and statements from representatives of the parties involved.
How it all started
It all
starts on October, 23, 2017 when DTB Kenya, in an offer letter, informed
Ham and others that an application of the $4m (14.8b) loan had been
granted.
The loan offer, which after various computations would make
a consolidated sum of $4.5m (Shs16.7b), had been part of an application
in which Ham had sought to access about $8m in funding for projects in
and outside Kampala.
In advancing only $4m, it meant that the rest of the loan would be sourced from DTB Uganda.
Indeed,
it is not a refutable fact that the money was advanced. However,
trouble started mid last year, after, according to details before
court, the performance of the loan had become unhealthy.
Details
indicate the bank had grown concerned as the facility started to default
on due payments for extended days or even weeks.
The defaults later escalated into months, which prompted DTB to
remind Ham of the consequences that would among others force the bank to
recall the loan.
Indeed, later in November 2019 DTB informed Ham of
its intention to foreclose on properties against which the loan had
been advanced, unless the company owned by businessman Hamis Kiggundu,
had provided sufficient commitment to repay the loan in its entirety.
It
is here that hell started to break loose, tearing apart a relationship
that had spun over a decade and thrown the entire banking sector “under
the bus”.
The storm had been building silently for months between
November up to December 2019 and into the first months of 2020 before
it was all clear in March that indeed it was not all well between DTB
and Ham Enterprises.
Before March, Ham had written to DTB
threatening to withdraw his accounts from the bank and seeking an
explanation, in which he alleged that DTB had been illegally siphoning
money from his accounts.
Subsequently, in March, Ham filed an
application in which he sought court pronouncement on a number of
issues, part of which sought an order that would force DTB to refund
close to Shs120b, which was allegedly siphoned from Ham’s accounts as
well as a determination on whether DTB Kenya had acted illegally in
purporting to operate business in a jurisdiction where it was not
registered.
In the application, Ham had also sought an audit into
the company’s accounts so as to understand the magnitude of the illegal
siphoning.
Ham had claimed that DTB Uganda had provided DTB Kenya
an illegal cover to conduct business in Uganda and other illegalities
such as money laundering.
However, in an affidavit sworn by Stephen
Kodumbe, the DTB Kenya head of legal DTB refuted the claims and noted
that at no time had DTB Kenya conducted business in Uganda and it had
sufficient evidence to prove Ham’s loans had been offered in Kenya.
“
… the second respondent [DTB Kenya] never carried out any financial
institutions business in Uganda and that the credit facilities alluded
to by the Applicants [Ham and others] were offered … in Kenya after
[Ham] applied ... there with the said facilities transferred to [Ham’s]
account in Kenya,” the affidavit reads in part and notes that DTB Kenya
only instructed DTB Uganda to act as a collection agent through an
escrow account but not acting as its agent in conducting financial
institution business.
Actually, the gist of the case is, away from
other issues, contained in the merits of the law that demand that for
any financial institution to conduct business in Uganda, it must be
registered by the Central Bank.
In a defense filed through
K&K Company Advocates and AF Mpanga, Advocates, DTB Kenya,
according to Kodumbe’s affidavit and another by Mbabazi K Emejeit, the
DTB Uganda head of legal, denied to ever have conducted financial
institutions business in Uganda, saying it had evidence to prove that
the ($4.5m) referred to were offered to Ham in Kenya.
Court ruling
However,
in his ruling Justice Adonyo said that whereas the loans had been
offered in Kenya, they had been advanced to “Ugandan entities without
the approval of the controlling authorities as provided for under the
[law], which …. requires a foreign bank to seek authorisation of Bank of
Uganda before it can engage in ... lending and extending credit
facilities”.
Therefore, he ruled: “I am of the considered opinion
that indeed ... [DTB Kenya and DTB Uganda] committed illegalities when
money facilities were rendered … without prior authorisation of the Bank
of Uganda.”
Court also found that DTB Kenya had acted illegally in
appointing DTB Uganda as a collection agent since the law, under the
Financial Institutions Act, 2004, does not permit any “ financial
institution to conduct agent banking in Uganda without written approval
of the Central Bank”.
In a statement on Wednesday, whereas the Central Bank indicated that “an entity that is not licensed in Uganda is not eligible to apply to the Bank of Uganda to conduct agent banking, it went on to suggest that perhaps DTB had not acted illegally when it said it was not “mandatory for a foreign bank to establish a representative office in Uganda in order to conduct lending or non-deposit-taking activity”.
However, the statement signed by
Emmanuel Tumusiime-Mutebile, the Bank of Uganda governor, noted that the
Central Bank’s regulatory and supervisory powers only apply to
financial institution business conducted by Central Bank licensed
entities.
Justice Adonyo also granted Ham’s prayer for the refund of
close to Shs120b that the company claimed had been siphoned out of its
accounts.
However, asked how court had arrived at the Shs120b
without an independent audit, Fred Muwema, a lawyer, whose law firm –
Muwema Company Advocates and Solicitors - is retained by Ham to provide
legal counsel, told Daily Monitor Ham had, through his auditors,
established that DTB had been siphoning his accounts for close to 10
years.
The evidence, he said, had been provided to court and the Judge was satisfied thus the award.
However,
it should be noted that Ham had applied for an audit of his accounts
which court had granted but the request was later withdrawn on Ham’s own
volition.
The Institute of Certified Public Accounts had been
directed to identify an auditor but it was never executed since Ham had
filed an application withdrawing the request.
Therefore, in
whichever direction it goes, it remains to be seen how the case that has
thrown Uganda’s banking sector off balance, will pun out at the appeal
level or even beyond.
Some of the court orders
1.
I do order for the recovery by Ham from DTB of Shs34.2b and $23.4m
being monies that were unlawfully taken from Ham’s loan accounts.
2. I
do declare that since DTB Kenya did not produce a licence allowing it
to conduct financial institutions business in Uganda from Bank of Uganda
in respect of the business alluded hereto then the alleged credit
facilities that were stated to have been offered were illegal and thus
void ab initio and consequently unenforceable.
3. I
do declare that the appointment of DTB Uganda by DTB Kenya as agent
bank and security agent was illegal, unethical, unlawful, in breach of
trust, in breach of fiduciary duty and in breach of the Financial
Institutions Act 2004 and the Kenyan Banking Act.
4.
I do hereby issue an order for the unconditional release of mortgages
allegedly created over properties comprised in Kyadondo at Kawuku,
Victoria Crescent II Kyadondo at Makerere Hill Road and all corporate
and personal guarantees issued by Ham.
Additional reporting by Dorothy Nakaweesi
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