In an ongoing court battle that is pitting KCB Bank against its client, Tirupati Development (U) Limited which specializes in real estate investment and development, the commercial bank stands to lose billions in assets and reputation. The case relates to a loan amounting to $7m, roughly Shs26bn.
In the case filed by Tirupati Development (U) Limited, the following are the respondents: the central Bank of Uganda, KCB Bank Uganda, KCB Bank Kenya and Financial Intelligence Authority (FIA).
Generally, the applicant accuses the four defendants of breach of contract, negligence, money laundering, fraud and conspiracy to defraud. The accusations relate to a syndicated $7m loan that KCB Bank Uganda and KCB Kenya extended to Tirupati Development (U) Limited in July 2012. Also agreed on was a 0.5 per cent of the $7m, equivalent to $35,000, as loan negotiation fees.
In its application, Tirupati Development (U) Limited sought several court orders and declarations. The real estate investment and development agency wanted court to declare that KCB engaged in breach of contract, fraud, conspiracy and failure to manage its accounts.
For BoU and FIA, Tirupati Development (U) Limited sought declarations that these entities did not do their part in as far as shielding the company from risks of financial crime as well as managing the risk of financial crime exposure were concerned. That these should have done something instead of looking on as KCB Bank Uganda and Kenya made questionable transactions on the company’s accounts.
The real investment and development also sought orders requiring KCB Bank Uganda and Kenya to produce documents on transactions and financial crime.
The documents required included: those detailing loan transactions and loan account origination, negotiation, approval, processing; and key facts documents, management and closure.
Others are: hard copies of KCB Bank’s policy on fraud detection, reporting, investigation, management, resolution, and closure; investment origination and management of current and loan accounts; as well as all policies on information and computer technology, system authenticity, cyber security, and digital forensics.
Also sought were money laundering policies and suspicious transaction reports on both current and loan accounts for the time the Anti Money Laundering Act 2013 has been operational.
The bank opposed these requests on grounds that giving Tirupati its documents would give the financial institutions’ competitors advantage since they would now have given them a peek into their internal processes. The bank also argued that giving the client such documents would expose Tirupati and other customers further.
KCB Bank also opposed the request on grounds that it would be a breach of agreements on confidentiality and privacy for other clients yet these are not even part of the case.
In the end, Justice Musa Ssekaana of the High Court ruled that Tirupati’s application partially succeeds and ordered that KCB Bank Uganda and Kenya should give Tirupati the following documents: the loan transaction and loan account origination, negotiation, approval, processing, key facts documents, management, and closure in respect of loan accounts No. 1059906732 and loan account number 215022605732; Uganda Shilling account number 2201449287, US dollar current account No. 22900351628 and US dollar Account Number 2201449317.
HOW DID KCB BANK & TIRUPATI GET HERE?
ROUND ONE
The loan agreement for the Shs26bn between KCB Kenya and KCB Uganda on one side and Tirupati on the other was entered in 2012. But Tirupati claims that the banks extended less money to the real estate investment agency than had been agreed.
What followed was a 2017 court case in which, according to Tirupati, KCB Kenya and KCB Uganda offered to compensate them by financing the running loan. The result was a consent judgment whose contents the real estate agency accuses the banks of violating.
Court documents also indicate that in 2017, KCB consented that the firm owed them $5,972,237, the payment of which would result in release of their securities. Despite payment of $3,988,538 and debiting $995,466.78 by the bank from its account, the sums were not applied to loan repayments which should have substantially reduced the loan
They continue to show that the bank continued pressuring Tirupati to pay $4,564,859.28, an amount for which they say there was no evidence. The real estate company also accused the bank of declining to issue bank statements on the loan in question as well as a breakdown of the loan figures were reached.
The other accusation that came up was that even when they had not sought their authorization, between 2014 and 2021, KCB made transactions to the tune of Shs307bn on the company’s bank accounts, and that as if that was not enough, in 2016 the banks illegal opened and ran two separate dollar loan accounts in the names of Tirupati, which the company realized later.
The other accusation, according to court documents, was that without seeking the company’s consent, KCB Uganda illegally opened and operated a dollar account number 2290351628 in the names of Tirupati Development (U) Limited. That it was after the real estate investment company had failed to get an explanation from the bank that they decided to seek legal redress.
ROUND TWO
In August 2022, Justice Musa Ssekaana of the High Court in Kampala allowed Tirupati Development Uganda Limited to go ahead with their suit in a case of alleged fraud against KCB Bank, ending the banks’ quest to block prosecution in case that could be deal them a huge blow.
KCB Bank Uganda and Kenya had filed a res judicata application seeking to block Tirupati’s suit. Their argument was that the matter’s resolution had already been determined by courts of law and re-litigation was unnecessary.
The banks argued that they entered a consent judgement with Tirupati in 2017, agreeing to resolve the issue at hand out of court. That the temple of justice approved this consent judgement and that it would not only be unnecessary but also against the laws and rules to allow another lawsuit on the same matter.
But Justice Ssekaana left KCB Bank bosses in tears when he threw out their application and allowed for a suit.
Ssekaana ruled that when the previous decision was not made on merit, subsequent litigation between the same parties on the same subject matter does not operate as res judicata. His other argument was that there are now new parties to the case – BoU and FIA – and that it cannot therefore be res judicata.
You read the list of Uganda’s most profitable banks, how much money they made from you, their clients, as well as those which made losses Here.
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